Question - On Nov 10, 2017 Singh Electronics began to buy and resell scanners for $55 each. Singh uses the perpetual system to account for inventories. The scanners are covered under a warranty that requires the company to replace any non-working scanner within 90 days. When a scanner is returned, the company simply throws it away and mails a new one from inventory to the customer. The companys cost for a new scanner is only $35. Sing estimates warranty costs based on 18% of the number of units sold. The following transactions occurred in 2017 and 2018 (ignore GST AND PST):
Nov 15 - sold 2000 scanners for 110000 cash
30 - recognized warranty expense for Nov with an adjusting entry
Dec 8 - Replaced 150 scanners that were returned under the warranty
15 - sold 5500 scanners
29 - replaced 40 scanners that were returned under the warranty
31 - recognized warranty expense for Dec with an adjusting entry
2018
Jan 14 - sold 275 scanners
20- replaced 63 scanners that were returned under the warranty
31 - recognized warranty expense for Jan with an adjusting entry.
Required:
1. How much warranty expense should be reported for Nov and Dec 2017?
2. How much warranty expense should be reported for Jan 2018?
3. What is the balance of the estimated warranty liability as of Dec 31, 2017?
4. What is the balance of the estimated warranty liability as of Jan 31, 2018?
5. Prepare journal entries to record the transactions and adjustments (ignore sales tax).