Question

Valley TrailsValley Trails guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 7%of sales. Assume that the Valley Trails

dealer in Colorado Springs made sales totaling $450,000 during 2018. The company received cash for 40​% of the sales and notes receivable for the remainder. Warranty payments totaled

$18,000 during 2018.

1.

Record the​ sales, warranty​ expense, and warranty payments for the company. Ignore cost of goods sold.

2.

Assume the Estimated Warranty Payable is​ $0 on January​ 1, 2018. Post the 2018 transactions to the Estimated Warranty Payable​ T-account. At the end of 2018​, how much in Estimated Warranty Payable does the company​ owe?

1. Begin with the entry to record the sales. ​(Prepare a single compound entry for this​ transaction.)

Date			Accounts and Explanation	Debit	Credit
2018

Record the warranty expense.

Date			Accounts and Explanation	Debit	Credit
2018

Record the warranty payments for the company.

Date			Accounts and Explanation	Debit	Credit
2018

2. Use the​ T-account to determine the ending balance for the Estimated Warranty Payable account. Use a​ "Beg. Bal." posting reference to show the beginning balance of the account and an​ "End. Bal." posting reference to show the ending balance of the account.​ (Enter a​ "0" for any zero​ amounts.)

Estimated Warranty Payable

Answer 1

1.

Transaction	Account Titles	Debit	Credit
		$	$
a.	Cash	180,000
	Notes Receivable	270,000
	Sales Revenue		450,000
	To record sales
b.	Warranty Expense ( $ 450,000 x 0.07 )	31,500
	Estimated Warranty Payable		31,500
	To record warranty expense
c.	Estimated Warranty Payable	18,000
	Cash		18,000
	To record warranty payments

2.

Estimated Warranty Payable
Beg. bal.			$ 0
Warranty Expense		31,500
Cash	18,000
End. bal.			$ 13,500 Cr.

At the end of the year, the company owes $ 13,500 in estimated warranty payable.