A Company Sells Sofas with a 6-Month Warranty

question 86

Essay

A company sells sofas with a 6-month warranty.In January,the company sold 100,000 sofas at $1,750 each;and 500 sofas needed repairs during that same month.The total repairs amounted to $85,000 costs from the upholstery materials inventory.It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $200 per unit.Prepare the journal entries to record (a)estimated warranty expense for January and (b)warranty repair costs for January.

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Definitions:

Stockholders' Equity

The residual interest in the assets of a corporation after deducting its liabilities, often referred to as shareholders' equity.

Common Stockholders' Equity

The portion of a corporation's equity that belongs to holders of its common shares, consisting of capital invested by the shareholders plus retained earnings.

Management's Discussion

An analysis provided by the management of a company, typically found in the annual report, detailing past performance and future outlook.

Stock Price

The cost of purchasing a share of a company’s stock in the stock market.