Early in 2017, Coronado Equipment Company sold 500 Rollomatics during 2017 at $5,500 each. During 2017, Coronado spent $18,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
A
Prepare 2017 entries for Coronado. Assume that Coronado estimates the total cost of servicing the warranties will be $50,000 for 2 years
B
Prepare 2017 entries for Coronado assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $51,000 relates to sales of warranty contracts. Coronado estimates the total cost of servicing the warranties will be $50,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.
| No | Description | Debit $ | Credit $ |
| A | |||
| 1 | Cash | 2750000 | |
| Sales | 2750000 | ||
| (500 X $5500) | |||
| Warranty Expense | 18000 | ||
| Cash | 18000 | ||
| Warranty Expense | 32000 | ||
| Estimated Liability Under Warranties |
32000 | ||
| (50000-18000) | |||
| B | |||
| 1 | Cash | 2750000 | |
| Sales | 2699000 | ||
| Unearned Warranty Revenue | 51000 | ||
| (500 X $5500) | |||
| 2 | Warranty Expense | 18000 | |
| Cash | 18000 | ||
| 3 | Unearned Warranty Revenue | 18360 | |
| Warranty Revenue | 18360 | ||
| [$51,000 X ($18,000/$50,000)] |
