Question

Early in 2017, Sheryl Crow Equipment Company sold 500 Rollomatics during 2017 at $6,000 each. During 2017, Crow spent $20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.Prepare 2017 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. Crow estimates the total cost of servicing the warranties will be $55,000 for 2 years. Estimate revenues to be recognized on a straight-line basis. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Round intermediate calculations to 5 decimal places, e.g. 1.54657 answers to 0 decimal places, e.g. 5,125.)

Answer 1

Step-by-step explanation:

Debit $ Credit$

a. Cash 3000000

Sales revennue (500*6000) 3000000

Warranty expenses 55000

Estimated warranty liability 55000

Estimated warranty liability 20000

Cash account 20000

b. Cash account 3000000

Sales revenue (500*6000- 56000) 2944000

Unearned warranty revenue 56000

Warranty expenses 20000

Cash account 20000

Unearned warranty revenue 20364

Warranty revenue (56000*20000/55000) 20364