Riley Corporation Manufactures and Sells Weedeaters

Essay

Riley Corporation manufactures and sells weedeaters. Riley provides all customers with a three-year warranty guaranteeing to repair, free of charge, any defects reported during this time period. During the year, it sold 85,000 weedeaters for $225 each. Analysis of past warranty records indicates that 8% of all sales will be returned for repair within the warranty period. Riley expects to incur expenditures of $15 to repair each weedeater. The account Estimated Liability for Warranties had a balance of $115,000 on January 1. Riley incurred $90,000 in actual expenditures during the year.
REQUIRED:
Identify all necessary transactions to record the events related to the warranty transactions during the year and show their accounting equation effects. Determine the adjusted ending balance in the Estimated Liability for Warranties account.