Wright Machinery Corporation manufactures automible enginesfor major automobile
ID: 2433316 • Letter: W
Question
Wright Machinery Corporation manufactures automible enginesfor major automobile producers. these engiines have a warrantyagainst any defects for a period of five years. Even though wrightMachiney does not have a seperate warranty contract, it assumesthat the $993 selling price of each egine includes an impliedservice contract of $73 per engine. During 2007 WrightMachinery sold 8000 engines to National Motors. During 2007 WrightMachinery repaired defective motors at a cost of $94,400. Required Prepare the journal entries for the preceeding transactions,assuming that wright Machinery uses the sales warranty accrualmethod to account for warranties. Wright Machinery Corporation manufactures automible enginesfor major automobile producers. these engiines have a warrantyagainst any defects for a period of five years. Even though wrightMachiney does not have a seperate warranty contract, it assumesthat the $993 selling price of each egine includes an impliedservice contract of $73 per engine. During 2007 WrightMachinery sold 8000 engines to National Motors. During 2007 WrightMachinery repaired defective motors at a cost of $94,400. Required Prepare the journal entries for the preceeding transactions,assuming that wright Machinery uses the sales warranty accrualmethod to account for warranties.Explanation / Answer
Answer:
1. During 2007 Wright Machinery sold 8000 engines toNational Motors.
Date
Particulars
Debit ($)
Credit ($)
2007
Cash A/C # 01
$7,944,000
Sales (8000 engines sold to NationalMotors)
A/C # 02
$7,944,000
8000 units X $993 = $7944000
Date
Particulars
Debit ($)
Credit ($)
2007
Sales (8000 engines sold to National Motors)
A/C # 02
$584,000
Service Contract (Warranties) (800engines)
A/C # 03
$584,000
8000 units X $73 = $584000
2. During 2007 Wright Machinery repaired defective motors at acost of $94,400.
Date
Particulars
Debit ($)
Credit ($)
Service Contract (Warranties)
A/C # 03
$94,400
Warranties claimed by customers.
$94,400
Date
Particulars
Debit ($)
Credit ($)
2007
Cash A/C # 01
$7,944,000
Sales (8000 engines sold to NationalMotors)
A/C # 02
$7,944,000
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