[md220]

On December 6, 2011, Midinski sold a computer for cash $8,000 (cost $4,200) with a two year parts and labour warranty. Based on prior experience, Midinski expects eventually to incur warranty costs equal to %5 of the selling price. The fiscal year p.27 coincides with the calender year p.27. On January 20, 2012, the customer returned the PC for repairs. That were completed on the same day, parts were $198 and labour was $40 that was fully paid for with cash. These were the only repairs required in 2012 for this PC.

1. How much warranty expense should the company report in 2011 for this computer?

2. How much is the warranty liability for this computer as of Dec 31, 2011?

3.How much warranty expense should the company report in 2012 for this computer?

4.How much is warranty liability for this computer as of December 31, 2012?
hint. Ending 2012 balance = $162

5.Show the journal entries that would be made to record (a) the sale (assume a perpetual inventory system); (b) the adjustment on December 31,2011 to record the warranty expense; and (c) the repairs that occurred in January 2012. Ignore sales taxes.