PE 11-7B Estimated warranty liability

Quantas Industries sold $325,000 of consumer electronics during July under a nine-month warranty. The cost to repair defects under the warranty is estimated at 4.5% of the sales price. On November 11, a customer was given $220 cash under terms of the warranty. Provide the journal entry for (a) the estimated warranty expense on July 31 for July sales, and (b) the November 11 cash payment.


Answer:

a.
 July 31 Product Warranty Expense 14,625
Product Warranty Payable 14,625
To record warranty expense for July,
4.5% × $325,000.
b.
 Nov. 11 Product Warranty Payable 220
Cash 220