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During its first year of operations, Keene Limited had sales of $76,500
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. Create 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?
Expert Solution
1)
| Journal Entries: | |||
| Transaction | Account Titles and Explanation | Debit | Credit |
| 1) | Warranty Expenses ($76500*(0.5%+1.5%)) | 1530 | |
| Warranty Liability | 1530 | ||
| (Being entry made to book the year's warranty expense) | |||
| 2) | Warranty Liability | 1200 | |
| Cash | 1200 | ||
| (Being entry made to meet the current year's warranty repairs) | |||
2)
The warranty liability be reported on the company's year-end balance sheet under the Liability side as a heading "Warranty Liability Account".
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