Problem - Early in 2017, Sheryl Crow Equipment Company sold 500 Rollomatics during 2017 at $6,000 each. During 2017, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
Instructions
(a) Prepare 2017 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be $55,000 for 2 years.
(b) Prepare 2017 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $56,000 relates to sales of warranty contracts. Crow estimates the total cost of servicing the warranties will be $55,000 for 2 years. Estimate revenues to be recognized on the basis of costs incurred and estimated costs.