you are a controller for an auto dealer. the sales department would like to use

Question

you are a controller for an auto dealer. the sales department would like to use a new extended warranty program for used cars. they want to charge 1/2 the cost of warranty to eacch vehicle, before the vehicle is sold. the other 1/2 of cost are charged as advertising expense, when the vehicle is sold. warrant cost depend on mileage on the car and is determined when the vehicle comes into dealership. when car sold the warranty is pain for. provide journal entries and show effects on financial statements.

Explanation / Answer

journal entries DR Cash 6000 (24000-18000) DR Cost of Sales 20000 CR Inventory 2000 (18000-20000) CR Revenue 24000 financial statements: revenue increases by 20%

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