Financial Accounting > QUESTIONS & ANSWERS > Week 2 HW Intermediate Accounting II (X) 2021 (All)
Week 2 HW Intermediate Accounting II (X) 2021
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E13-11 (Warranties) 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. ANS: a) Cash 3,000,000 Sales (500 x 6,000) 3,000,000 Warranty Expense 20,000 Cash 20,000 Warranty Expense 100,000 Estimated Liability Under warranties 100,000 ($120,000 - $20,000) b) Cash 3,000,000 Sales 2,850,000 Unearned Warranty Revenue 150,000 Warranty Expense 20,000 Cash 20,000 Unearned Warranty Expense 25,000 Estimated Liability Under warranties 25,000 ($150,000 X – ($20,000/$120,000) [Show More]
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