WARRANTIES
Montague Auto Repair specializes in the repair of foreign car transmissions. To encour- age business, Montague offers a six-month warranty on all repairs. The following data are available for 2009:
| Transmissions repaired, 2009 |
1,250 |
| Expected frequency of warranty claims |
0.12 per repair |
|
Actual number of warranty claims, 2009
|
75
|
|
Estimated warranty liability, 1/1/09
|
$ 550
|
|
Cost of each warranty claim
|
$ 10
|
Assume that warranty claims are paid in cash.
Required:
1. Compute the warranty expense for 2009.
2. Prepare the entry to record the payment of the 2009 warranty claims.
3. What is the December 31, 2009, balance in the estimated warranty liability account? Why has the balance in the estimated warranty liability account changed from January 1, 2009?