tvee years or 1500 hors, whichever comes indusry expenence nicates fat Lesre can

Question

tvee years or 1500 hors, whichever comes indusry expenence nicates fat Lesre can expect warrany costs wa equa 6 percent of sm Assume a frit year, tísn Boats had sales taïg $590,000, receiving cash for 46 percent of sales and notes receivable for the remainder Warranty payments totaled $20,200 during the year Read the ceoviemes 1.Roeerd he sales, wanardy-se, and warranty payments tr Lemre0oats wore oost of goods soedReoord deba hstthen aeda bene, epanano. humanymastmes) Start by recording the sales Journal EiMry Debit

Explanation / Answer

1.

2.

At the end of the first year, Leisure owes its customers $15200 in estimated warranty payable.

3. Leisure will report $35400 of warranty expense in its first year of operations.

The warranty expense of $35400 for the year does not equal the year's cash payments for warranties which are $20200.

This situation is addressed by the matching principle wherein the expenses are matched with the revenues.

Journal Entry Date Accounts Debit Credit Cash (46% x $590000) 271400 Notes receivable 318600 Sales revenue 590000 Warranty expense (6% x $590000) 35400 Estimated warranty payable 35400 Estimated warranty payable 20200 Cash 20200

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