Gonzalez Equipment Company sold 600 Rollomatics during 2014 at $4,000 each.
During 2014, Gonzalez spent $30,000 servicing the 2-year warranties that accompany
the Rollomatic. All applicable transactions are on a cash basis.

Instructions

(a) Prepare 2014 entries for Gonzalez using the expense warranty approach. Assume
that Gonzalez estimates the total cost of servicing the warranties will be $150,000 for
2 years.
(b) Prepare 2014 entries for Gonzalez assuming that the warranties are not an integral
part of the sale. Assume that of the sales total, $200,000 relates to sales of warranty
contracts. Gonzalez estimates the total cost of servicing the warranties will be
$150,000 for 2 years. Estimate revenues earned on the basis of costs incurred and
estimated costs. (Tips: warranty sold separately is treated as unearned revenue)