E-13-22 Warranty expense

Chapter 20 – Question 8:
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 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 2010 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
Warranty expense (2% ×
$2,500,000)
Estimated warranty liability

50,000

Actual expenditures (summary
entry)
Estimated warranty liability
Cash, wages payable, parts
and supplies, etc.

23,000

50,000

23,000

In late 2011, the company's claims experience was evaluated and it was determined that claims were far
more than expected—3% of sales rather than 2%.
Required:
(1) Assuming sales of the sprinklers in 2011 were $3,600,000 and warranty expenditures in 2011 totaled
$88,000, prepare any journal entries related to the warranty. (Omit the "$" sign in your response.)
General Journal
Accrued liability and expense

Debit

Credit

Actual expenditures (summary entry)

(2) Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011
related to the warranty. (Omit the "$" sign in your response.)
General Journal
Actual expenditures (summary
entry)

Debit

Credit