Sheryl Crow Equipment Company sold 500 Rollomatics during 2014 at $6,000 each. During 2014, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis. Instructions
(a) Prepare 2014 entries for Crow using the expense warranty approach. Assume that Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years.
(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.

(a) Prepare 2014 entries for Crow using the expense warranty approach. Assume that Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years.

To record the 2014 sales:

Dr Cash 3,000,000

    Cr Sales revenue 3,000,000

Dr Warranty expense 120,000

    Cr Warranty liability 120,000

To record the expenses related to warranty liability during 2014

Dr Warranty liability 20,000

    Cr Cash 20,000

(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.

To record the 2014 sales:

Dr Cash 2,850,000

    Cr Sales revenue 2,850,000

Dr Cash 150,000

    Cr Unearned warranty revenue 120,000

    Cr Warranty revenue 30,000

To record the expenses related to warranty liability during 2014

Dr Warranty expenses 20,000

    Cr Cash 20,000

Since the warranty covers a 2 year period, the company cannot recognize any more warranty revenue yet.

answer; to open a new transaction, the user should type the code/0 along with a new transaction code, when done with that the user should press enter to open the transaction; good luck;