Question - Kingbird Company sells a machine for $7,140 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 440 machines in 2017 (warranty expense is incurred half in 2017 and half in 2018). As a result of product testing, the company estimates that the warranty cost is $310 per machine ($132 parts and $178 labor). Use "Inventory" account to record the warranty expense.
Assuming that actual warranty costs are incurred exactly as estimated, what journal entries would be made relative to the following facts?
(1) Sale of machinery in 2017.
(2) Warranty costs incurred in 2017.
(3) Warranty expense charged against 2017 revenues.
(4) Warranty costs incurred in 2018.