Chapter 4
Current Liabilities
175
AP-15A (
7
8
)
Inline Company sells Spartan laptops for $3,500 each. Each laptop comes with a three-year
warranty that requires the corporation to replace defective parts and provide labour. Assume
the warranty is honoured equally over the three years. During 2016 the corporation sold 300
laptops. Based on past experience, the estimated average cost for repairs under warranties
will be $150 for parts and $200 for labour per laptop sold. During 2017, actual repair cost was
$12,000 for parts and $24,000 for labour.
Required
a) Prepare a journal entry on December 31, 2016 to record the estimated warranty liability in
2016.
Date
Account Title and Explanation
Debit
Credit
b) Explain how the warranty liability and expense will appear on the balance sheet and
income statement on December 31, 2016.
c) Prepare the journal entry on December 31, 2017 to record the warranty costs for 2017.
Date
Account Title and Explanation
Debit
Credit
