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Chapter 11: Q3TI (page 594)

O’Conner guarantees its vacuums for four years. Prior experience indicates that warranty costs will be approximately 6%ofsales. Assume that O’Conner made sales totaling $200,000 during 2018. Record the warranty expense for the year.

Short Answer

Expert verified

Answer :

Date

Account

Debit

Credit

2018

Warranty Expense

$12,000



Warranty Payable


$12,000


To record the warranty expense for 2018



Step by step solution

01

Step-by-step solution

Step 1: Calculation for warranty costs

WarrantyCost=Percentageofsales×Sales=6%×$200,000=$12,000

02

Explanation about warranty costs.

The warranty costs are matched to the sales to apply the matching concept requiring expenses are matched to their associated revenues. The expense is recognized by creating a warranty account that is drawn upon when repairs are performed.

03

Explanation of the journal entry

Warranty expense is debited and warranty payable is credited by an amount of $12,000 in order to record the warranty expense for 2018.

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