Cookie Creations sells fine European mixers that it purchases from Kzinski Supply Co. Kzinski warrants the mixers to be free of defects in material and workmanship for a period of one year from the date of original purchase. If the mixer has a defect, Kzinski will repair or replace the mixer free of charge for parts and labor. The product must be shipped prepaid to an authorized Kzinski service center. The cost to ship the mixer is paid by the consumer. The cost to return the product to the consumer is paid by Kzinski. The autorized service center is located in Boston. Because Cookie Creastions values serving its customers, it pays the shipping to Boston for any mixers needing repair under Kzinski's warranty terms. Based on past experience, Kzinski has found that approximately 10% of mixers are returned for repair or replacement. THe average cost to ship a mixer to Boston is $60. The following transactions take place in 2013 and 2014.
1. A total of 30 mixers are sold in 2013
2. Four of the mixers sold in 2013 are returned for repair in 2014. The total shipping cost for returning these four mixers to Boston is $210.
3. A total of 40 mixers are sold in 2014.
4. Two of the mixers sold in 2014 are returned for repair in 2014. The total shipping cost for returning these two mixers to Boston is $55.
A. Calculate Cookie Creations' warranty liability for the shipping costs at 12/31/13
Warranty liability for 2013: $180
B. Record esimated warranty liability at December 31, 2013.
Warranty Expense 180
Warranty Liability 180
C. Prepare the summary journal entry (or entires) to record the shipment of the six mixers. (four from the 2013 saled and two from the 2014 sales) for warranty repair in 2014.
Warranty Liability 210
Cash 210
(To record shipment of 2013)
Warranty Liability 55
Cash 55
(To record shipment of 2014)
D. Calculate Cookie Creations warranty liability at December 31, 2014. (Hint: Note that there is no liability outstanding for the mixers sold in 2013. The one-year warranty period has expired.)
E. Record the estimated warrant liability at December 31, 2014. (Hint: Similar to accounting for bad debts, consider any existing balance in the warranty liability account when you prepare your entry. You will find it helpful to prepare a general ledger account for the warranty liability and to post the above transactions.)
I am having trouble calculating D and E part of this problem.