E13–22 - Woodmier Lawn Products - Warranty expense; change in estimate ● LO5 LO6
Woodmier
Lawn Products introduced a new line of commercial sprinklers in 2010
that carry a one-year warranty against manufacturer’s defects. Because
this was the first product for which the company offered a warranty,
trade publications were consulted to determine the experience of others
in the industry. Based on that experience, warranty costs were expected
to approximate 2% of sales. Sales of the sprinklers in 2010 were $2.5
million. Accordingly, the following entries relating to the contingency
for warranty costs were recorded during the first year of selling the
product:
Accrued liability and expense
Warranty
expense (2% × $2,500,000)
...........................50,000.................................
Estimated warranty liability
.............................................................50,000........
Actual expenditures (summary entry)
Estimated warranty liability ............................................23,000..........................
Cash, wages payable, parts and supplies, etc. ...................................23,000
In
late 2011, the company’s claims experience was evaluated and it was
determined that claims were far more than expected—3% of sales rather
than 2%.
Required:
1. Assuming
sales of the sprinklers in 2011 were $3.6 million and warranty
expenditures in 2011 totaled $88,000, prepare any journal entries
related to the warranty.
