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Lets work through a warranty expense and warranty liability example problem. This problem says McNeely company offers of 75 day warranty to customers for defective merchandise. Based on past experience. McNeely estimates that 5% 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 $15. The units sold and units defective that occurred during the last two months of 2020 are as follows so we have this table here that shows for November and December how many units we sold and how many units have already become defective before the end of the year. So what do we need to. Well we need to prepare the following journal entries first record the cost incurred in honoring the 1185 warranty claims. Then record the warranty liability on December 31st for the units sold in November and December. And finally record the cost incurred in honoring 300 warranty claims in
