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General Motors Corporation reported $8.8 billion of product warranties in the Current Liability section of a recent balance sheet. How would costs of repairing a defective product be recorded?

2007-08-22 23:25:38 · 4 answers · asked by Anonymous in Business & Finance Corporations

4 answers

When the provision for product warranties was created, the entry was:
Dr Product warranties expense (expense item)
Cr Prov. for product expense (balance sheet item)

Once the provision is set up, each time a payment is made to repair a defect, your reverse it from the provision a/c.
Dr Prov. for product expense
Cr Cash
As time goes by, the balance in the prov. a/c will fall. At year-end, management will assess how much the provision a/c needs to be, and the first entry above is made again, to 'top-up' the provision account.

2007-08-25 01:40:43 · answer #1 · answered by Sandy 7 · 0 0

The warranty cost is the company's estimate of what it will have to pay during the current accounting period to service customer's warranties. Therefore this has already been recorded as a current period expense. The company debited an expense account and credited the liability.

When the company performs services under the warranty, the amounts spent on the services reduce the liability. For example, if the company pays a dealer $300 for warranty work, the reduction in cash is recorded by an equal reduction in the warranty liability.

2007-08-23 07:40:48 · answer #2 · answered by Anonymous · 1 0

wouldn't that still be a liability because GM would need to pay for the repair not the customer

2007-08-23 06:36:39 · answer #3 · answered by 2cute4you 5 · 0 0

Debit accrued liability and credit labor and material.

2007-08-23 08:44:44 · answer #4 · answered by ustoev 6 · 0 1

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