During its first year of operations, Choy Limited had sales of $765,000.The company offers a 2-year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of sales with an additional 1.5% in the second year.During the current year the company spent $12,000 on warranty repairs.
Required:
A) Prepare all journal entries related to the warranty for the current year.
B) How would the warranty liability be reported on the company's year-end balance sheet?

Question

Quizplus · Accepted Answer

The Answer of During its first year of operations, Choy Limited had sales of $765,000.The company offers a 2-year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of sales with an additional 1.5% in the second year.During the current year the company spent $12,000 on warranty repairs.
Required:
A) Prepare all journal entries related to the warranty for the current year.
B) How would the warranty liability be reported on the company's year-end balance sheet?

During Its First Year of Operations, Choy Limited Had Sales