Question

Question 2 During its first year of operations, Keene Limited had sales of $76,500. The company offers a 2-year limited warranty on all sales and expects that warranty costs for the first year will average 0.5% of sales with an additional 1.5% in the second year. During the current year the company spent $1,200 on warranty repairs. 1. Prepare all journal entries related to the warranty for the current year. 2. How will the warranty liability be reported on the company's year-end balance sheet?

Answer 1

Requiremnti: Credit Account Titles & Explanantion 1 Warranty Expenses (76500*(0.5+1.5% Warranty Liability Debit $ 1,530 $ 1,530 $ 2 Warranty Liability Cash 1,200 $ 1,200 B Warranty liability reported Under the Liability side as heading Warrany Liability Account Credit Debit $ 5,53,125 Requiremnt2: Date Account Titles & Explanantion Jun-30 Cash Premium on Bonds Payable (500000*110.625) Bonds Payable $ $ 53,125 5,00,000 Dec-31 Interest Expenses $ Premium on Bonds Payable (20000-553125*3.5 $ Cash (500000*4% 19,359 641 $ 20,000 Jun-30 Interest Expenses Premium on Bonds Payable Cash $ $ 19,337 663 $ 20,000 * Kindly Comment down for any further clarifications/ queries and please upvote.