Question

Kind of stuck on this one with the JE. Need to know if I am on the right track with this problem. Please help

Thomas sells products that carry a 6-month manufacturer’s warranty. Customers have the opportunity at the time of purchase to also buy a 3 year extended warranty for an additional charge of $100. Thomas sold 1,000 units this year for $2,000 each. For this year’s sales, Thomas estimates the 6-month warranty costs to be 10% of sales. Thomas incurred $40,000 servicing these warranties. Thomas estimates that the service cost on the extended warranties will be $70 per warranty. During the first year, Thomas sold 200 extended warranties and incurred costs of $2,000 to service extended warranties. During the second year, Thomas incurred $12,000 servicing the extended warranty.

First Year
Cash	2,000,000
	Sales Revenue	2,000,000
Warranty Expense	200,000		2,000,000x10%
	Estimated Warranty Liability	200,000
Warranty Expense	40,000
	Service Expense	40,000
Warranty Expense	14,000		70x200
	Estimated Warranty Liability	14,000
Warranty Expense	2,000
	Service Expense	2,000
Second Year
Estimated Warranty Liability	4,000		12,000/3
	Cash	4,000

Answer 1

First Year	1	Cash A/c		Dr.		2,000,000.00
		Sales Revenue			Cr.		2,000,000.00
		(Sales of Product 2000 X 1000)
	2	Cash A/c		Dr.		20,000.00
		Extended Warranty Liability			Cr.		20,000.00
		(Sale of Extended Warranty 200 X 100)
	3	Warranty Expenses		Dr.		200,000.00
		Warranty Liability			Cr.		200,000.00
		(Warranty Provision 2000000 X 10%)
	4	Warranty Liability		Dr.		40,000.00
		Cash/Creditor			Cr.		40,000.00
		(Actual Warranty expenses for 6 month warranty)
	5	Warranty Liability		Dr.		160,000.00
		Warranty Expenses			Cr.		160,000.00
		(Warranty expired 200,000-40,000)
	6	Warranty Expenses		Dr.		2,000.00
		Cash/Creditor			Cr.		2,000.00
		(Actual Extended Warranty expenses)
2nd Yr	7	Warranty Expenses		Dr.		12,000.00
		Cash/Creditor			Cr.		12,000.00
		(Actual Extended Warranty expenses)
3rd Yr	8	Extended Warranty Liability		Dr.		6,000.00
		Warranty Revenue			Cr.		6,000.00
		(20000-2000-12000)