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Journal Entry for Estimated Warranty

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Bombeck Company sells a product for $1,500. When the customer buys it, Bombeck provides a one-year warranty. Bombeck sold 120 products during 2010. Based on analysis of past warranty records, Bombeck estimates that repairs will average 3% of total sales.

Required:

1. Prepare a journal entry to record the estimated liability.

2. Assume that during 2010, products under warranty must be repaired using repair parts from inventory costing $4,950. Prepare the journal entry to record the repairs of products.

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Solution Summary

This solution illustrates the journal entry for estimated warranty liability and the cost of actual repairs against the warranty.

Solution Preview

1. Prepare a journal entry to record the estimated liability.

Sales price per unit $ 1,500
Units sold in 2010 120
Total sales revenues ...

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