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# What is the company's warranty expense for the month of Nov?

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A company sells computers at a selling price of \$1,800 each. Each computer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all computers sold will be returned under the warranty at an average cost of \$150 each. During November, the company sold 30,000 computers, and 400 computers were serviced under the warranty at a total cost of \$55,000. The balance in the Estimated Warranty Liability account at November 1 was \$29,000. What is the company's warranty expense for the month of November?

#### Solution Summary

No, there are some distracting details you don't need....including the \$29,000. See a tutorial in the activity in the liability attached.

\$2.19

## Colin Company sells automatic can openers under a 75-day warranty for defective merchandise.

How do I determine the estimated warranty on Part B? Do I multiply by 100. Please advise.

Colin Company sells automatic can openers under a 75-day warranty for defective merchandise. Based on past experiences, Colin Company estimates that 3% of the units sold will become defective during the warranty period.
Management estimates that the average cost of replacing or repairing a defective unit is \$15.00 The units sold and units defective that occurred during the last 2 months of 2006 are as follows:
Month Units sold Units Defective Prior to December 31
November 30,000 600
December 32,000 400

Instructions:
(a) Determine the estimated warranty liability at December 31 for the units sold in November and December.

Estimated warranties outstanding:
Month Estimate Units Defective Outstanding
November Number Number Formula
December Number Number Formula
Total Formula Formula Formula
Estimated warranty cost Amount
Estimated warranty liability Formula

(b) Prepare the journal entries to record the estimated liability for warranties and the costs (assume actual costs of \$15,000) incurred in honoring 1,000 warranty claims.

Account title Amount
Account title Amount

Account title Amount
Account title Amount

(c) Give the entry to record the honoring of 500 warranty contracts in January at an average cost of \$15

Account title Amount
Account title Amount

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