Big Dots Provides a One-Year Warranty with All Its Products

Essay

Big Dots provides a one-year warranty with all its products it sells.It estimates that it will sell 350,000 units of its product for the year ended December 31,2016,and that its total revenue for the product will be $105,000,000.It also estimates that 75% of the product will have no defects,5% will have major defects,and 20% will have minor defects.The cost of a minor defect is estimated to be $6 for each product repaired,and the cost for a major defect cost is about $21.The company also estimates that the minimum amount of warranty expense will be $1,500,000 and the maximum will be $6,000,000.Prepare the journal entry for 2016 under the warranty.