Sadler Corporation produces lawnmowers. The lawnmowers are sold with a free three-year warranty. During Year One, Sadler sold 20,000 lawnmowers for $10 million in cash. These lawnmowers cost $5,800,000. Sadler's accountant estimates that 10 percent of the units will need to be repaired at some point over the next three years at an average cost of $37 per lawnmower.
A) Make the journal entry to record the sale of the lawnmowers in Year One if a perpetual inventory system is used.
B) Make the journal entry (if any is needed) to record the warranty.
C) During Year Two, Sadler spends $24,000 to repair a number of these lawnmowers. Prepare the necessary journal entry.
D) At the end of Year Two, Sadler's accountant reevaluates the warranty. The accountant suspects that the actual warranty liability will be higher than her original estimate. She now believes that 12 percent of the original sales will eventually result in a repair (but still at $37 each). Make the necessary adjusting entry.