Clean Corporation manufactures and sells dishwashers. Clean provides a

QUESTION

Clean Corporation manufactures and sells dishwashers. Clean provides all customers with a two-year warranty guaranteeing to repair, free of charge, any defects reported during this time period. During the year, it sold 100,000 dishwashers for $325 each. Analysis of past warranty records indicates that 12% of all sales will be returned for repair within the warranty period. Clean expects to incur expenditures of $14 to repair each dishwasher. The account Estimated Liability for Warranties had a balance of $120,000 on January 1. Clean incurred $150,000 in actual expenditures during the year. RequiredIdentify and analyze the effect of the events related to the warranty transactions during the year. Determine the adjusted ending balance in the Estimated Liability for Warranties account.
Total Sales units 100,000.00 Warranty units expected 12,000.00 (Given that it is 12% of sales) 1 Entry for Provision made for Warranty @ 12% of sales units @ 14 $ Per unit Warranty Expense 168,000.00 Estimated Liability for Warranties 168,000.00 (Provision made for 12000 units @ 14 per unit) 2 Journal Entry for actual expense Estimated Liability for Warranties 150,000.00 Cash 150,000.00 (Actual expenses¦

red during the year) 3 Adjusted Ending Balance in Estimated Liabilities of Warranties Account Opening Balance as on 1 Jan 120,000.00 Add: Liability Provided during the year 168,000.00 Less: Liability reversed during the year 150,000.00 Closing Balance as on 31 Dec 138,000.00

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