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Chapter 11: 21E (page 578)

Accounting for warranty expense and warranty payable

The accounting records of Sculpted Ceramics included the following at January 1, 2018:

Estimated Warranty Payable

5,000 Beg. Bal

In the past, Sculpted’s warranty expense has been 9% of sales. During 2018, Sculpted made sales of \(113,000 and paid \)7,000 to satisfy warranty claims. Requirements

  1. Journalize Sculpted’s warranty expense and warranty payments during 2018. Explanations are not required.
  2. What balance of Estimated Warranty Payable will Sculpted report on its balance sheet at December 31, 2018?

Short Answer

Expert verified
  1. Warranty expense = $10,170
  2. The estimated warranty payable is $8,170.

Step by step solution

01

Meaning of Balance sheet

The balance sheet is a report that lists all of an entity's assets, liabilities, and equity. Lenders, investors, and creditors commonly use it to evaluate a company's liquidity. A balance sheet is one of the papers that make up a company's financial statements.

02

Preparing Journal entry

Date

Particulars

Debit ($)

Credit ($)

2018

Warranty expense

10,170

Estimated warranty payable

10,170

Working note:

Waranty expense=Sales×Percent=$113,000×9%=$10,170

03

Report the balance on the balance sheet

Estimated warranty payable

Detail

Debit ($)

Detail

Credits ($)

Payments

7,000

Balance (opening)

5,000

Accrual

10,170

Total

7,000

Total

15,170

Balance (closing)

8,170

Therefore, the balance of the estimated warranty payable report on the balance sheet on December 31, 2018, is $8,170.

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Most popular questions from this chapter

List the required employee payroll withholding deductions, and provide the tax rate for each.

Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

  1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are not required.
  2. What was Ricardo’s total expense for 2018 related to payroll?

Logan White is general manager of Valuepoint Salons. During 2018, White worked for the company all year at a \(13,600 monthly salary. He also earned a year-end bonus equal to 15% of his annual salary.

White’s federal income tax withheld during 2018 was \)1,360 per month, plus \(4,876 on his bonus check. State income tax withheld came to \)150 per month, plus \(60 on the bonus. FICA tax was withheld on the annual earnings. White authorized the following payroll deductions: Charity Fund contribution of 1% of total earnings and life insurance of \)40 per month.

Valuepoint incurred payroll tax expense on White for FICA tax. The company also paid state unemployment tax and federal unemployment tax.

Requirements

1. Compute White’s gross pay, payroll deductions, and net pay for the full year 2018. Round all amounts to the nearest dollar.

2. Compute Valuepoint’s total 2018 payroll tax expense for White.

3. Make the journal entry to record Valuepoint’s expense for White’s total earnings for the year, his payroll deductions, and net pay. Debit Salaries Expense and Bonus Expense as appropriate. Credit liability accounts for the payroll deductions and Cash for net pay. An explanation is not required.

4. Make the journal entry to record the accrual of Valuepoint’s payroll tax expense for White’s total earnings.

5. Make the journal entry for the payment of the payroll withholdings and taxes.

Consider the following transactions of Sapphire Software: Mar. 31 Recorded cash sales of $230,000, plus sales tax of 7% collected for the state of New Jersey. Apr. 6 Sent March sales tax to the state. Journalize the transactions for the company. Ignore cost of goods sold.

The following transactions of Belkin Howe occurred during 2018:

Apr. 30 Howe is party to a patent infringement lawsuit of \(230,000. Howe’s attorney is certain it is remote that Howe will lose this lawsuit.

Jun. 30 Estimated warranty expense at 3% of sales of \)390,000.

Jul. 28 Warranty claims paid in the amount of \(6,300.

Sep. 30 Howe is party to a lawsuit for copyright violation of \)90,000. Howe’s attorney advises that it is probable Howe will lose this lawsuit. The attorney estimates the loss at \(90,000.

Dec. 31 Howe estimated warranty expense on sales for the second half of the year of \)520,000 at 3%.

Requirements

1. Journalize required transactions, if any, in Howe’s general journal. Explanations are not required.

2. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?
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