Question 3 Sheryl Crow Equipment Company sold 648 Rollomatics during 2014 at $6,

Question

Question 3

Sheryl Crow Equipment Company sold 648 Rollomatics during 2014 at $6,680 each. During 2014, Crow spent $64,200 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

(a)

Account Titles and Explanation

Debit

Credit

(To record the sale)

(To record the warranty expense)

(To record the warranty liabilitiy)

Show List of Accounts

(b) Prepare 2014 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales of warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues to be recognized on the basis of costs incurred and estimated costs

Question 3

Sheryl Crow Equipment Company sold 648 Rollomatics during 2014 at $6,680 each. During 2014, Crow spent $64,200 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Explanation / Answer

b)Normal sales = 4328640 -   150000 = 4178640

% of revenue to be recognised in 2014 = 64200 / 120000 = .535

Revenue to be recognised in 2014 = .535 *150000 = 80250

Date Title Debit credit a cash 4328640 sales    (648*6680) 4328640 [to record sales] b Warranty expense 214000 Warranty liability 214000 [To record warranty expense] c Warranty liability 64200 cash 64200 [To record warranty liability]

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