Warranty Calculations
A company offers warranties on products for two years past the purchase date. The company estimates that 4% of sales dollars will be the cost of warranty work needed to satisfy its promises. If the company sells $2,000,000 of merchandise this year and has an outstanding credit balance in Estimated Warranty Liability of $25,000 at the end of the year, prepare the adjusting journal entry for warranty expense this year. Also, prepare the journal entry to recognize the $60,000 of warranty work that was done during the year. Assume all work involved parts, but no labor was necessary.
