Finisher Inc. sells merchandise of $250,000 in 2020 that includes a three-year limited warranty. Warranty costs are estimated to be 1% of sales. The company incurred actual costs of $800 in 2020 related to the warranties. a. Record the warranty accrual at the time of sale in 2020. b. Record the adjustment to the warranty accrual for actual warranty costs in 2020.

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Question:

Finisher Inc. sells merchandise of $250,000 in 2020 that includes a three-year limited warranty. Warranty costs are estimated to be 1% of sales. The company incurred actual costs of $800 in 2020 related to the warranties. a. Record the warranty accrual at the time of sale in 2020. b. Record the adjustment to the warranty accrual for actual warranty costs in 2020.

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Answer: See explanationExplanation:a. Record the warranty accrual at the time of sale in 2020. Debit Warranty expense = $250,000 × 1% = $2,500Credit Warranty Liability $2,500 (To record the warranty accrual)b. Record the adjustment to the warranty accrual for actual warranty costs in 2020.Debit Warranty Liability $800Credit Cash and Payables $800

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