Cupola Corporation introduced a new line of commercial awnings in 2013 that carry a two-year warranty against manufacturer’s defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 2% of sales during the first 12 months following the sale and 4% in the next 12 months. Assume product sales in January of 2012 were $4,000,000 on credit and actual warranty expenditures were $100,000 in 2012 and $140,000 in 2013. Cupola Corporation also sells a 3-year extended warrantly that begins when the product warranty ends. In Junuary, 2012, Cupola sold $330,000 of these extended warranties.
1) Give all the entries necessary for the product warranty for 2012 and 2013. Give the balance in the Estimated Warranty liability account at the end of each year.
2) Give all the entries necessary for the extended warranty for 2012-2016. Give the balance in the Deferred Revenue account at the end of each year.