At the beginning of 2018, Scarlet Industries began providing a three-year warranty on its products. The warranty program was expected to cost Scarlet 2% of net sales, approximately equally over the three-year warranty period. Net sales made under warranty in 2018 were $270 million. Thirteen percent of the units sold were returned in 2018 and repaired or replaced at a cost of $2 million. This amount was debited to warranty expense as incurred.
Required:
Prepare the appropriate adjusting entry to adjust warranty expense on December 31, 2018. Show calculations.

Question

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The Answer of At the beginning of 2018, Scarlet Industries began providing a three-year warranty on its products. The warranty program was expected to cost Scarlet 2% of net sales, approximately equally over the three-year warranty period. Net sales made under warranty in 2018 were $270 million. Thirteen percent of the units sold were returned in 2018 and repaired or replaced at a cost of $2 million. This amount was debited to warranty expense as incurred.
Required:
Prepare the appropriate adjusting entry to adjust warranty expense on December 31, 2018. Show calculations.

At the Beginning of 2018, Scarlet Industries Began Providing a Three-Year