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Hitzu Co. sold a copier (that costs $4,800) for $6,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. Hitzu expects warranty costs to be 4% of dollar sales. It records warranty expense with an adjusting entry on December 31. On January 5 of Year 2, the copier requires on-site repairs that are completed the same day. The repairs cost $209 for materials taken from the repair parts inventory. These are the only repairs required in Year 2 for this copier. 1. How much warranty expense does the company report for this copier in Year 1? 2. How much is the estimated warranty liability for this copier as of December 31 of Year 1?

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Zviko

Answer:

warranty expense = $240

estimated warranty liability = $240

Explanation:

There is no option on the customer to take the warranty or not. Therefore this type of warranty is known as an Assurance type warranty.

Assurance type warranties are accounted for terms of IAS 37 - Provisions as follows ;

Year 1

Warranty expense $240 (debit)

Warranty Provision $240 (credit)

Warranty Amount = $6,000 × 4% = $240

Year 2

When warranty claim is subsequently received

Warranty Provision $209 (debit)

Materials $209 (credit)

The inventory is referred to as the goods and the materials that the business holds for the goal of the sale. It is mandated to manage the inventory of the firm in order to shape and place the goods to the market from the balance of the goods and services.  

There is no option for the customer to choose among the warranty ones or without warranty ones. Therefore this type of warranty is known as an Assurance type warranty.

Assurance type warranties are accounted for terms of IAS 37 - Provisions as follows ;

Year 1

Warranty expense $240 (debit)

Warranty Provision $240 (credit)

Warranty Amount = $6,000 × 4% = $240

Year 2

When a warranty claim is subsequently received

Warranty Provision $209 (debit)

Materials $209 (credit)

To know more about the calculation of inventory, refer to the link below:

https://brainly.com/question/16657468

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