Question
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
- How much warranty expense does the company report for this copier in Year 1?
- How much is the estimated warranty liability for this copier as of December 31 of Year 1?
16 of Year 1 . Hitzu expects warranty costs to be
December 31 . On January 5 of Year 2 , the copier requires on-site repairs that are completed the same day. The repairs
cost
Exercise
Ask by Ramos Lyons. in the United States
Dec 08,2024
Upstudy AI Solution
Tutor-Verified Answer
Answer
- Warranty Expense for Year 1: $330
- Estimated Warranty Liability as of December 31 of Year 1: $330
Solution

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The Deep Dive
Let’s dive into the numbers!
-
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! -
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!