Question

Exercise 13-21 Swifty Equipment Limited sold 480 Rollomatics on account during 2017 for $6,100 each. During 2017, Swifty spent $25,000 servicing the two-year warranties that are included in each sale of the Rollomatic. All servicing transactions were paid in cash Prepare the 2017 entries for Swifty using the assurance-type (expense-based) approach for warranties. Assume that Swifty estimates that the total cost of servicing the warranties will be $122,800 for two years. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit To record sales) (To record warranty expense paid in cash) (To accrue outstanding warranty)

Answer 1

Req 1.
Journal entries:
Accounts title and explanation				Debit $	Credit $
Accounts receivable (480*6100)				2,928,000
Sales revenue					2,928,000
Warranty expenses				25000
Cash account					25000
Warranty expenses				97800
Estimated warranty liabilities (122800-25000)					97800
Req 2.
Journal entries:
Accounts title and explanation				Debit $	Credit $
Accounts receivable (480*6100)				2928000
Sales revenue					2765700
Unearned warranty revenue					162300
Warranty expenses				25000
Cash account					25000
Unearned warranty expenses				33042
Warranty revenues (162300/122800*25000)					33042
Req 3.
			Using expens		Warranties are not
			Approach		Integral part of sale
Sales revenue			2928000		2765700
Warranty revenues			0		33042
less: Warranty expenses			-122800		-25000
Net income			2805200		2773742