E13–22 – Woodmier Lawn Products – Warranty expense; change in estimate
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.
2. Assuming sales of the sprinklers were discontinued after 2010, prepare any journal entry(s) in 2011 related to the warranty.
Exercise 13-22
Requirement 1
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