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Chapter 11: Q12RQ (page 604)

When do businesses record warranty expenses, and why?

Short Answer

Expert verified

Warranty expense is recorded at the time of making sales. It is recorded at the time of sales due to the matching principle.

Step by step solution

01

Warranty

A warranty is a kind of agreement that makes a guarantee against any defects in a company’s product. It is an expense for the company and a benefit for the customer. Warranty expense is related to the after-sale service.

02

Recording warranty expense

Accounting for warranty expenses is based on the matching principle. Warranty expense is recorded at the time of making sales as warranty payable. This warranty expense is recorded based on estimation. When a company makes sales, it is estimated that some of its products would be claimed for warranty. Based on that estimation warranty expense is determined.

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Most popular questions from this chapter

:On December 31, 2017, Franklin purchased $13,000 of merchandise inventory on a one-year, 9% note payable. Franklin uses a perpetual inventory system. Requirements

1. Journalize the company’s purchase of merchandise inventory on December 31, 2017.

2. Journalize the company’s accrual of interest expense on June 30, 2018, its fiscal year-end.

3. Journalize the company’s payment of the note plus interest on December 31, 2018

Macintosh Company has monthly salaries of \(26,000. Assume Macintosh pays all the standard payroll taxes, no employees have reached the payroll tax limits, total income tax withheld is \)2,000, and the only payroll deductions are payroll taxes. Journalize the accrual of salaries expense, accrual of employer payroll taxes, and payment of employee and employer payroll taxes for Macintosh Company.

: On June 1, Hunting Man Magazine collected cash of $63,000 on future annual subscriptions starting on July 1. Requirements

1. Journalize the transaction to record the collection of cash on June 1.

2. Journalize the transaction required at December 31, the magazine’s year-end, assuming no revenue earned has been recorded. (Round adjustment to the nearest whole dollar.)

What payroll taxes is the employer responsible for paying?

Erin O’Neil Associates reported short-term notes payable and salaries payable as follows:

2018

2017

Current Liabilities—partial:

Short-term Notes Payable

\(16,900

\) 16,000

Salaries Payable

3,400

4,000

During 2018, O’Neil paid off both current liabilities that were left over from 2017, borrowed cash on short-term notes payable, and accrued salaries expense. Journalize all four of these transactions for O’Neil during 2018. Assume no interest on short-term notes payable of $16,000.
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