Warranty expense & warranty liability
I need help with the following question. Any pointers is greatly appreciated.
Warranty expense. Woodmier Lawn Products introduced a new line of
Commercial sprinklers in 2002 that carry a one-year warranty against
Manufacturer’s defects. Because this was the first product for which the
Company offered a warranty, trade publications were consulted to determine the
Experience of others in the industry. Based on that experience, warranty costs
Were expected to approximate 2% of sales. Sales of the sprinklers in 2002 were
$2,500,000. Accordingly, the following entries relating to the contingency for
Warranty costs were recorded during the first year of selling the product:
Accrued liability and expense
Dr Warranty expense (2% × $2,500,000)... 50,000
Cr Estimated warranty liability... ………... 50,000
Actual expenditures (summary entry)
Dr Estimated warranty liability ……… 23,000
Cr Cash, wages payable, parts and supplies, etc... 23,000
In late 2003, the company’s claims experience was evaluated and it was determined that claims were more than expected –3% of sales rather than 2%.
Required:
1. Assuming sales of the sprinklers in 2003 were $3,600,000 and warranty expenditures
In 2009 totaled $88,000, prepare any journal entries related to the warranty.
2. Assuming sales of the sprinklers were discontinued after 2008, prepare any journal entry(s) in 2009 related to the warranty.