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% x $ 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 |