Betancourt company sells automatic can openers under a 75-day warranty for defective merchandise. based on past experience, betancourt estimates that 4% of the units sold will become defective during the warranty period. management estimates that the average cost of replacing or repairing a defective unit is $20. the units sold and units defective that occurred during the last 2 months of 2017 are as follows.

months units sold units defective prior to december 31
november 37,300 746
december 39,300 491

prepare the journal entries to record the estimated liability for warranties and the costs incurred in honoring 1,237 warranty claims. (assume actual costs of $24,740.)

In November:

Estimated defective units:

= Percentage Estimated to be defective units × Units sold

= 4% × 37,300

= 1,492

Estimated cost of repairing defective units:

= Estimated defective units × Estimated cost of repairing defective unit

=  1,492 × $20

= $29,840

In December:

Estimated defective units:

= Percentage Estimated to be defective units × Units sold

= 4% × 39,300

= 1,572

Estimated cost of repairing defective units:

= Estimated defective units × Estimated cost of repairing defective unit

=  1,572 × $20

= $31,440

Total estimated liability:

= $29,840 + $31,440

= $61,280

The Journal entries are as follows:

(a) Warranty expenses A/c   Dr. $61,280

To Estimated warranty payable                $61,280

(Estimated warranty expenses for December and November sales)

(b) Estimated warranty payable A/c    Dr. $24,740

To Cash/ Material consume                                     $24,740

(To record warranty expenses incurred)

1   all nations face the problem of scarcity because there are limited resources and unlimited wants. nations do not have enough factors of production to produce everything that their population wants. entrepreneurial resources initiate businesses to make new goods and services; labor resources produce goods and services.

2 there are four factors of production: natural resources, labor resources, capital resources, and entrepreneurial resources. natural resources are raw materials from nature that are used to produce goods. trees, water, and grains are natural resources. some natural resources, such as wheat and cattle, are renewable

3 wants

things that you do not need to have in order to survive, but would like to have

needs

things that you must have in order to survive

goods

physical products

services

tasks that a business perform for customers

resources

items that people can use to make or obtain what they need or want

determine

to settle or decide by choice of alternatives or possiblities

4 i really dont know