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26 January, 15:11

Pronghorn Appliances provides a 3-year warranty with one of its products which was first sold in 2017. Pronghorn sold $1,840,000 of products subject to the warranty. Pronghorn expects $202,000 of warranty costs over the next 3 years. In 2017, Pronghorn spent $106,000 servicing warranty claims. Prepare Pronghorn's journal entries to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs; Pronghorn now expects future warranty costs of $115,000

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  1. 26 January, 15:20
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    See the explanation below.

    Explanation:

    Balance in the warranty liability account after claim = $202,000 - $106,000 = $96,000

    Amount needed to reduce expected warranty to $115,000 = $155,00 - $96,000 = $19,000

    The journal entries will be as follows:

    Details Dr ($) Cr ($).

    Cash 1,840,000

    Sales revenue 1,840,000

    To record the sales of products.

    Warranty expenses 202,000

    Estimated warranty liability 202,000

    To record the expected warranty expenses.

    Warranty liability account 106,000

    Inventory 106,000

    To record the warranty claim.

    Warranty expenses 19,000

    Estimated warranty liability 19,000

    To record the reduction of expected warranty expenses to $115,000.
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