Account for warranty expense and estimated warranty payable
Response to the following problem:
Tires USA guarantees tires against defects for five years or 60,000 miles, whichever comes first. Suppose Tires USA can expect warranty costs during the five-year period to add up to 5% of sales. Assume that a Tires USA dealer in Atlanta, Georgia, made sales of $674,000 during 2014. Tires USA received cash for 35% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19,400 during 2014.
1. Record the sales, warranty expense, and warranty payments for Tires USA.
2. Post to the Estimated Warranty Payable T-account. The beginning balance was $14,000. At the end of 2014, how much in estimated warranty payable does Tires USA owe to its customers?