Question
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Hitzu Company sold a copier (that costs ) for cash with a two-year parts warranty to a customer on August
16 of Year 1 . Hitzu expects warranty costs to be of dollar sales. It records warranty expense with an adjusting entry on
December 31 . On January 5 of Year 2 , the copier requires on-site repairs that are completed the same day. The repairs
cost for materials taken from the parts inventory. These are the only repairs required in Year 2 for this copier.
Exercise (Algo) Warranty expense and liability computations and entries LO P4
  1. How much warranty expense does the company report for this copier in Year 1?
  2. How much is the estimated warranty liability for this copier as of December 31 of Year 1?

Ask by Ramos Lyons. in the United States
Dec 08,2024

Upstudy AI Solution

Tutor-Verified Answer

Answer

  1. Warranty Expense for Year 1: $330
  2. Estimated Warranty Liability as of December 31 of Year 1: $330

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The Deep Dive

Let’s dive into the numbers!
  1. To calculate the warranty expense Hitzu Company should report for the copier in Year 1, we need to consider the sales price and the estimated warranty cost percentage. The selling price is , and applying the warranty cost expectation gives us an expense of . So, Hitzu can comfortably report a warranty expense of for Year 1!
  2. Now, to find the estimated warranty liability as of December 31 of Year 1, we refer back to that calculated expense. Since there haven’t been any warranty costs incurred yet, the entire amount of remains as a liability. Therefore, Hitzu’s estimated warranty liability is also at the end of Year 1. Keeping things balanced!

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