Question

Early in 2017, Kingbird Equipment Company sold 600 Rollomatics during 2017 at $5,600 each. During 2017, Kingbird spent $20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Prepare 2017 entries for Kingbird. Assume that Kingbird estimates the total cost of servicing the warranties will be $58,000 for 2 years

Date	Account Titles and Explanation	Debit	Credit
At SaleDuring 2017Dec. 31, 2017
At SaleDuring 2017Dec. 31, 2017
At SaleDuring 2017Dec. 31, 2017

Prepare 2017 entries for Kingbird assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $59,000 relates to sales of warranty contracts. Kingbird estimates the total cost of servicing the warranties will be $58,000 for 2 years

Date	Account Titles and Explanation	Debit	Credit
At SaleDuring 2017Dec. 31, 2017
At SaleDuring 2017Dec. 31, 2017
At SaleDuring 2017Dec. 31, 2017

Answer 1

	Answer a)
	Date	Journal	Debit	Credit
	1	Cash	$3,360,000
		Sales revenue		$3,360,000
		(Being sales recorded)
	2	Warranty expenses	$20,000
		Cash		$20,000
		(Being amount spend on service)
	3	Warranty Expenses($58,000-$20,000)	$38,000
		Estimated Liabilities warranty		$38,000
		(Being balance of warranty liability record)
	Answer b)
	Date	Journal	Debit	Credit
	1	Cash	$3,360,000
		sales		$3,301,000
		Unearned warranty revenue		$59,000
		(Being sales recorded)
	2	Warranty expenses	$20,000
		Cash		$20,000
		(Being amount spend on service)
	3	Unearned warranty revenue	$20,345
		Warranty expenses ($59000*$20,000/$58,000		$20,345