Handling Consumer Electronics Warranty Expenses

Estimated Warranty Expense Journal Entry on July 31

Quantas Industries sold $325,000 of consumer electronics during July under a nine-month warranty. The cost to repair defects under the warranty is estimated at 4.5% of the sales price. On July 31, the journal entry for the estimated warranty expense would be as follows:

July 31
Estimated Warranty Expense $14,625
Warranty Payable $14,625

To calculate the estimated warranty expense, we multiply the sales price by the estimated warranty repair cost percentage. In this case, the sales price is $325,000 and the estimated warranty repair cost percentage is 4.5% (0.045). Therefore, the estimated warranty expense is $325,000 x 0.045 = $14,625.

We debit the Estimated Warranty Expense account to record the expense and credit the Warranty Payable account to show the liability for future warranty repairs.

Cash Payment Journal Entry on November 11

On November 11, a customer was given $220 cash under the terms of the warranty. The journal entry for the cash payment would be as follows:

Nov. 11
Warranty Payable $220
Cash $220

When the customer received the $220 cash under the terms of the warranty, we debit the Warranty Payable account to reduce the liability for future warranty repairs and credit the Cash account to record the cash payment made.

In summary:

(a) Estimated Warranty Expense journal entry on July 31: Debit Estimated Warranty Expense $14,625 and Credit Warranty Payable $14,625.

(b) Cash payment journal entry on November 11: Debit Warranty Payable $220 and Credit Cash $220.

These journal entries reflect the estimated warranty expense and the cash payment made under the warranty terms.