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C. Clean-All, Inc. sells washing machines with a 3-year assurance type warranty. In the past, Clean-All...

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Accounting

C. Clean-All, Inc. sells washing machines with a 3-yearassurance type warranty. In the past, Clean-All has found that inthe year after the sale, warranty costs have been 3% of sales; inthe second year after sale, 5% of sales; and in the third yearafter sale, 7% of sales. the following data are also available:

Year Sales Warranty Expenditures

2018 650,000 82,000

2019 700,000 85,000

Instructions:

1. Prepare the journal entries for the preceding transactionsfor 2018-2019. Closing entries are not required.

2. Determine the amount Clean-All will report as liability onDecember 31, 2019, assuming the liability had a balance of $101,200on December 31, 2017.

Answer & Explanation Solved by verified expert
3.7 Ratings (442 Votes)

1
2018
Debit Credit
Cash (or Accounts Receivable) 650000
          Sales revenue 650000
Warranty Expense 97500 =650000*(3%+5%+7%)
         Estimated Warranty Liability 97500
Estimated Warranty Liability 82000
         Cash 82000
2019
Debit Credit
Cash (or Accounts Receivable) 700000
          Sales revenue 700000
Warranty Expense 105000 =700000*(3%+5%+7%)
         Estimated Warranty Liability 105000
Estimated Warranty Liability 85000
         Cash 85000
2
Estimated Warranty Liability,December 31, 2017 101200
Add: Warranty expense, 2018 97500
Add: Warranty expense, 2019 105000
Less: Warranty Expenditures, 2018 -82000
Less: Warranty Expenditures, 2019 -85000
Estimated Warranty Liability,December 31, 2019 136700

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