Problem - Merritt Equipment Company sells computers for $1,220 each and also gives each customer a 2 year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 950 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2017.)
In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $10,000 for parts and $15,000 for labor.
a) Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2017 & 2018.
2017 - (to record sale of computers)
2017 - (to record liability against warranty costs)
2018 -
b) The transactions of part (a) create what balance under current liabilities in the 2017 balance sheet?