Question

Pharoah Company sells remote control airplane engines, which carry a one-year warranty. If a customer brings in a defective engine, he replaces the engine with a new one from his inventory. Pharoah estimates that 2% of units sold will be defective. As at January 1, the Warranty Liability had a credit balance of $400.

Pharoah provided the following information for his year end of December 31.

Cost per engine		$115
Total sales		940	units
Actual warranty costs		$1,175

a) Calculate the estimated warranty expense for the year.

Estimated warranty expense

$

b) Prepare the journal entry for the estimated warranty expense for the year. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31

c)

Prepare the journal entry to record the actual warranty costs for the year. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Dec. 31

d) Calculate the ending balance in the warranty liability account at the end of the year.

Ending balance in warranty liability account

$

e) If Pharoah fixed an engine himself instead of replacing it with a new engine, what account would be credited instead of Repair Parts Inventory?

If Pharoah fixed an engine himself instead of replacing it with a new engine, the __________________ account would be credited instead of the Inventory account.

Option 1:Warranty repair inventory

Option 2: Salaries expense

Option 3: Warranty Liabilities

Option 4: Warranty Expense

Option 5: Salaries Payable

Answer 1