E13–22 - Woodmier Lawn Products

E13–22 - Woodmier Lawn Products - Warranty expense; change in estimate 

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 $2.5 million. 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) ...........................50,000................................. Estimated warranty liability .............................................................50,000........

Actual expenditures (summary entry)

Estimated warranty liability ............................................23,000.......................... 

Cash, wages payable, parts and supplies, etc. ...................................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 $3.6 million and warranty expenditures in 2011 totaled $88,000, prepare any journal entries related to the warranty.

2. Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.

Exercise 13-22

Requirement 1