Problem
Woodmier Lawn Products - Warranty expense; change in estimate
Woodmier Lawn Products introduced a new line of commercial sprinklers in 2010 that carry a one-year warranty against manufacturer'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, warranty costs were expected to approximate 2% of sales. Sales of the sprinklers in 2010 were $2.5 million. Accordingly, the following entries relating to the contingency for warranty costs were recorded during the first year of selling the product:
Accrued liability and expense
Warranty expense (2% × $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 claims experience was evaluated and it was determined that claims were far more than expected-3% of sales rather than 2%.
Task:
• Assuming sales of the sprinklers in 2011 were $3.6 million and warranty expenditures in 2011 totaled $88,000, prepare any journal entries related to the warranty.
• Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.
The response must include a reference list. One-inch margins, double-space, Using Times New Roman 12 pnt font and APA style of writing and citations.