Sales Warranty Accrual Method
Response to the following problem:
Wright Machinery Corporation manufactures automobile engines for major automobile producers. These engines have a warranty against any defects for a period of five years. Even though Wright Machinery does not have a separate warranty contract, it assumes that the $993 selling price of each engine includes an implied service contract of $73 per engine. During 2010, Wright Machinery sold 8,000 engines to National Motors. During 2010, Wright Machinery repaired defective motors at a cost of $94,400.
Required
Prepare the journal entries for the preceding transactions, assuming that Wright Machinery uses the sales warranty accrual method to account for warranties.