Question

E13.11 (LO 3) (Warranties) Early in 2020, Crow Equipment sold 500 Rollomatics at $6,000 each. During 2020, Crow spent $20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Instructions

a.   Prepare 2020 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties in the second year will be $35,000.

b.   Prepare 2020 entries for Crow assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $56,000 relates to sales of warranty contracts. Warranty costs incurred in 2020 were $20,000. Estimate revenues to be recognized on a straight-line basis.

Answer 1

S.No	General Journal	Debit	Credit
a	Cash	3000000
	Sales Revenue		3000000
	500*6000
	Warranty Expense	20000
	Cash, Supplies, Wages Payable		20000
	Warranty Expense	35000
	Warranty Liability		35000
b	Cash	3000000
	Sales revenue		2944000
	Unearned Warranty Revenue		56000
	Warranty Expense	20000
	Cash, Supplies, Wages Payable		20000
	Unearned Warranty Revenue	28000
	Warranty Revenue		28000
	56000/2