Warranty Expense and Warranty Work for June
1. What is the warranty expense for the month of June?
1. Warranty Expense $27,000, Estimated Warranty Liability $27,000.
2. What is the cost of the warranty work completed in June?
2. Estimated Warranty Liability $12,000, Cash (or Inventory, if applicable) $12,000.
Answers:
1. To record the warranty expense for the month of June, we will use the estimated warranty cost rate of 6% of sales.
Date: June 30, 2023
Warranty Expense $27,000
Estimated Warranty Liability $27,000
2. To record the cost of the warranty work completed in June, we will decrease the Estimated Warranty Liability by the actual cost of the parts used for warranty repairs.
Date: June 30, 2023
Estimated Warranty Liability $12,000
Cash (or Inventory, if applicable) $12,000
To calculate the warranty expense for the month of June, we first need to determine the estimated warranty cost rate, which is 6% of sales. In this case, the total sales for June were $450,000. Multiplying the total sales by the estimated warranty cost rate gives us the warranty expense for June:
Warranty Expense = $450,000 × 6% = $27,000
The warranty expense is recognized as an expense on the income statement, while the Estimated Warranty Liability is recorded on the balance sheet. This liability represents the estimated cost of future warranty claims.
As for the cost of the warranty work completed in June, it amounts to $12,000. This figure represents the actual cost of the parts used for the repairs. We reduce the Estimated Warranty Liability by this amount, as the company has fulfilled its warranty obligation by performing the necessary repairs.