WARRANTY EXPENSE; CHANGE IN ESTIMATE
SPECK Lawn products introduced a new line of commercial spriinklers in 2010 that carry a one-year warranty agaist manufacture'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. warrranty costs were espected to approximate 2% of sales. Sales of the Sprinklers in 2010 were $ 2.5 million. Accordingly, the following entries to the contingency for warranty costs were recorded during the first year of selling the product.
Accrued liability and expense
Warranty expense (2% X $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 claim 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 srinklers 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.