Hitzu Co. sold a copier costing $5,500 with a two-year parts warranty to a customer on August 16, 2015, for $11,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2016, the copier requires on-site repairs that are completed the same day.
The repairs cost $128 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier.
Based on experience, Hitzu expects to incur warranty costs equal to 3% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.
Exercise 9-10 Warranty expense and liability computations and entries LO P4 Hitzu Co. sold a copier costing $5,500 with a two-year parts warranty to a customer on August 16, 2015, for $11,000 cash. Hitzu uses the perpetual inventory system.
On November 22, 2016, the copier requires on- site repairs that are completed the same day.
The repairs cost $128 for materials taken from the Repair Parts Inventory. These are the only repairs required in 2016 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 3% of dollar sales. It records warranty expense with an adjusting entry at the end of each year.
1. How much warranty expense does the company report in 2015 for this copier?
2. How much is the estimated warranty liability for this copier as of December 31, 2015?