JournaldrillEstimating warranty costs
A journal entry exercise from Journaldrill. Solve it with an account picker and debit and credit fields in your browser, and it is checked the moment you submit.
The task
Ridgeline Appliances sold $180,000 of appliances in June, each with a one-year warranty. Based on experience, Ridgeline expects warranty costs equal to 2% of sales. Record the June warranty adjustment.
What this exercise teaches
Warranty costs are a probable, estimable obligation, so under US GAAP they are accrued in the period of the sale: $180,000 x 2% = $3,600 of Warranty Expense, with the credit to Estimated Warranty Liability. Waiting to expense repairs when they occur would mismatch the cost with the revenue that caused it.
A hint if you get stuck
Match the expected cost of honoring the warranty to the period of the sale, even though no repairs have happened yet.
Try it now, free, no account needed
The first 15 tasks on Journaldrill are free. Open it on the practice page, solve it, and get instant feedback with a hint. A free account adds the worked solution; Pro adds timed mode and the certificate.
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