Assignment
Air Continental sells central home air conditioning units under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2014, the corporation sells for cash 1,100 air conditioning units at a unit price of $4,000 each. On the basis of past experience, the 2-year warranty costs are estimated to be $125 for parts and $220 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2014.) The warranty is not sold separately from the air conditioning units.
(a) Record any necessary journal entries in 2014, applying the expense warranty accrual method.
(b) What is the balance of the warranty liability on the December 31, 2014 balance sheet?
In 2015, the actual warranty costs to Brooks Corporation were $71,950 for parts and $126,900 for labor. (c) Record any necessary journal entries in 2015, applying the expense warranty accrual method.