Problem
Alaska Computer Company sells computers for $2,000 each, which includes a three-year warranty that requires the company to perform periodic services and to replace defective parts. During 2023, Alaska sold 500 computers on account. Based on past experience, the company has estimated the total three-year warranty costs at $80 for parts and $100 for labour. (Assume sales all occur at December 31, 2023.)
In 2024, Alaska Computer Company incurred actual warranty costs relative to 2023 computer sales of $10,000 for parts and $12,000 for labour.
Task
1. Using the expense warranty approach, prepare the entries to reflect the above transactions (accrual method) for 2023 and 2024. Use Salaries and Wages Payable.
2. Using the cash basis method, what are the Warranty Expense balances for 2023 and 2024?