PE 11-7A Estimated warranty liability

Zinn Co. sold $500,000 of equipment during May under a one-year warranty. The cost to repair defects under the warranty is estimated at 5% of the sales price. On October 10, a customer required a $100 part replacement, plus $65 of labor under the warranty.

Provide the journal entry for (a) the estimated warranty expense on May 31 and (b) the October 10 warranty work.

Answer:
a.
May 31
Product Warranty Expense............................ 25,000  
            Product Warranty Payable............................ 25,000    
               To record warranty expense for May,
               5.0% × $500,000.

b.
Oct. 10
Product Warranty Payable................................. 165  
          Supplies ................................................ 100  
          Wages Payable ............................................ 65

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