Merritt Equipment Company sells computers for $1,500 each and also gives each cu
ID: 2596618 • Letter: M
Question
Merritt Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 1200 computers.
Based on past experience, the company has estimated the per unit 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2017.)
In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $16000 for parts and $24,000 for labor.
1. Record give the entires to reflect the above transactions (accrual method) for 2017 and 2018.
3.The transactions of part (a) create what balance under current liabilities in the 2017 balance sheet?
Explanation / Answer
Requirement 1: Journal entries for 2017: A Cash a/c Dr 1800000 To Sales a/c (1500*1200) 1800000 B Warranty Expense a/c Dr 120000 To Accrued Warranty Payable a/c 120000 ((40+60)*1200) Journal Entries for 2018: C Accrued Warranty Payable a/c Dr 40000 To Cash a/c 40000 Requirement 3: Current Liabilities in 2017 balance sheet: Accrued Warranty Payable 120000