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    angbev's Avatar
    angbev Posts: 2, Reputation: 1
    New Member
    		  
    #1

    Mar 29, 2009, 03:33 PM
    Warrany journaling/using inventory
    Warranties
    Bombeck Company sells a product for $1,500. When the customer buys it, Bombeck provides a one-year warranty. Bombeck sold 120 products during 2008. Based on analysis
    Of past warranty records, Bombeck estimates that repairs will average 3% of total sales.

    1. Prepare a journal entry to record the estimated liability.

    2. Assume that during 2008, products under warranty must be repaired using repair parts from inventory costing $4,950. Prepare the journal entry to record the repair of products.

    My Question is where do I start? I am not really sure how to start the journal entry.
    Please help!
    Sincerely
    angbev:confused:
    MaggieMouse's Avatar
    MaggieMouse Posts: 226, Reputation: 8
    Full Member
    		  
    #2

    Apr 1, 2009, 02:55 PM

    Should recognize the warranty expense as a percentage of sales. Dr. Warranty Expense Cr. Warranty Liability

    Whenever the actual repair happens, Dr the warranty liability and credit cash or inventory etc.

    Key to this problem is the matching method: expenses are tied to the revenue at sale.
    angbev's Avatar
    angbev Posts: 2, Reputation: 1
    New Member
    		  
    #3

    Apr 6, 2009, 08:46 AM
    Quote Originally Posted by angbev View Post
    Warranties
    Bombeck Company sells a product for $1,500. When the customer buys it, Bombeck provides a one-year warranty. Bombeck sold 120 products during 2008. Based on analysis
    of past warranty records, Bombeck estimates that repairs will average 3% of total sales.

    1. Prepare a journal entry to record the estimated liability.

    2. Assume that during 2008, products under warranty must be repaired using repair parts from inventory costing $4,950. Prepare the journal entry to record the repair of products.

    My Question is where do I start? I am not really sure how to start the journal entry.
    Please help!!
    sincerely
    angbev:confused:
    :)I just wanted to thank you so much for your help!
    Sincerely
    Angbev
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