E13-11 (LO3) (Warranties) Early in 2017, Sheryl Crow Equipment Company sold 500

Question

E13-11 (LO3) (Warranties) 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. nstructions (a) Prepare 2017 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be $55,000 for 2 years. (b) 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.

Explanation / Answer

a. Journal Entry b. Journal Entry Date Account Desription , Title Debit Credit Date Account Desription , Title Debit Credit Cash $3,000,000.00 Cash (500*$6000) $3,000,000.00 Sales Revenue (500*$6000) $3,000,000.00 Sales Revenue $2,944,000.00 To Record Sales Revenue Unearned Warranty Revenue 56000 To Record Sales Revenue Warranty expense $20,000.00 Cash $20,000.00 Warranty expense $20,000.00 To record annual service cost incurred Cash $20,000.00 To record annual service cost incurred Warranty expense $35,000.00 Estimated Liability Warranty $35,000.00 Unearn ed Warranty Revenue $20,364.00 To record remaining warranty estimated warranty expense Warranty Revenue $20,364.00 To record unearned Warranty Revenue Calculation of Remaininf Waranty Expense Detail' Amount Calculation for Unearned Warranty Revenue Total Estimated Warranty Expense $55,000 =Warranty Expense incurred/Estimated Total Cost of Servicing)*Salee of warranty contract Less: Warranty expense already incurred -20000 Remaininf Extimated warranty expense $35,000 =$20000/$55000*$56000 =$20364

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