Question

Trail Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail RunnerTrail Runner dealer in Colorado Springs made sales totaling $600,000 during 2018.The company received cash for 20​% of the sales and notes receivable for the remainder. Warranty payments totaled $10,000 during 2018.Read the requirements.Requirement 1. Record the​ sales, warranty​expense, and warranty payments for the company. Ignore cost of goods sold.a) Begin with the entry to record the salesAccounts and Explanation Debit Creditb) Record the warranty expense.Accounts and Explanation Debit Creditc) Record the warranty payments for the company.Accounts and Explanation Debit Creditd) Requirement 2. Assume the Estimated Warranty Payable is​ $0 on January​ 1, 2018. Post the 2018 transactions to the Estimated Warranty Payable​ T-account. At the end of 2018 how much in Estimated Warranty Payable does the company​ owe?Use the​ T-account to determine the ending balance for the Estimated Warranty Payable account. Use a​ "Beg. Bal." posting reference to show the beginning balance of the account and an​"End. Bal." posting reference to show the ending balance of the account.​ (Enter a​ "0" for any zero​ amounts.)Estimated Warranty Payable

Answer 1

Answer:

1. Record the​ sales, warranty ​expense, and warranty payments for the company. Ignore cost of goods sold.

To record sales during 2018:

Dr Cash 120,000

Dr Accounts receivable 480,000

    Cr Sales revenue 600,000

To record warranty liability:

Dr Warranty expense 30,000

    Cr Warranty payable 30,000

To record warranty related expenses:

Dr Warranty payable 10,000

    Cr Cash 10,000

Instead of cash it could have been wages payable, or repair parts inventory, but since we are not given any details, the safest thing is to assume cash payments.

2. Assume the Estimated Warranty Payable is​ $0 on January​ 1, 2018. Post the 2018 transactions to the Estimated Warranty Payable​ T-account. At the end of 2018 how much in Estimated Warranty Payable does the company​ owe?Use the​ T-account to determine the ending balance for the Estimated Warranty Payable account.

Ending balance of warranty payable account = $20,000

                                    Warranty Payable

                                   debit               credit

beg. bal.                         0                      0

warranty liability                                30,000

warranty costs            10,000                        

end. bal.                                             20,000