Dynamo Corporation manufactures toasters. Each toaster comes with a 5-year assurance-type warranty. The toasters sell for $50 each. During Year 1, Dynamo sells 500 toasters, for cash. Past experience shows that the average warranty costs are $5 each or $2,500 for these toasters. In Year 1, Dynamo pays $500 cash for warranty costs on the toasters sold that year.

Required:
Prepare Dynamo's journal entries related to the sales and warranty in Year 1.

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abiolataiwo2015 abiolataiwo2015 · Answer 1 · 2021-01-13T01:49:35+01:00

Answer:

1.Dr Cash 25,000

Cr Sales revenue 25,000

2. Dr Warranty expense 2,500

Cr Warranty liability 2,500

3.Journal entry for actual warranty expense

Dr Warranty liability 500

Cr Cash 500

Explanation:

Preparation of Dynamo's journal entries related to the sales and warranty in Year 1.

1.Dr Cash 25,000

Cr Sales revenue 25,000

(50*500)

2. Dr Warranty expense 2,500

Cr Warranty liability 2,500

3. Dr Warranty liability 500

Cr Cash 500

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