1. Merida Equipment Company sells competitive archery equipment for $3,500 each and, included
in the purchase of all equipment sets is a five-year warranty that requires Merida Equipment
Company to replace defective parts. Based on past experience, the company has estimated the
total 5-year warranty costs as $75 for parts and $120 for labor per set related to defects. During
2017, the company sold 870 archery sets. Assume sales all occur on December 31, 2017 and the
inventory cost on the archery sets is $2,700 per set.
In 2018, Merida Equipment Company incurred actual warranty costs related to defects on 2017
archery set sales of $16,000 in parts and $18,200 in labor.
Instructions:
7.1:What type of warranty is Merida Equipment Company offering?
7.2: Record all necessary journal entries for the sales of archery equipment in 2017.
7.3: Record any necessary journal entry(ies) in 2018 related to the warranty.