Betancourt Company sells automatic can openers under a 75-day warranty for defective merchandise, Based on past experience, Betancourt estimates that 3% of the units sold will become defective during the warranty period, Management estimates that the average cost of replacing or repairing a defective unit is $15. The units sold and units defective that occurred during the last 2 months of 2019 are as follows.
| Month | Units Sold | Units Defective Prior to December 31 |
| November | 30,000 | 600 |
| December | 32,000 | 400 |
Instructions
- Prepare the journal entries to record the estimated liability for warranties and the costs incurred in honoring 1,000 warranty claims. (Assume actual costs of $15,000.)
- Determine the estimated warranty liability at December 31 for the units sold in November and December.
- Give the entry to record the honoring of 500 warranty contracts in January at an average costs of $15.
Solution
