Problem -
Selzer Equipment Company sold 533 Rollomatics during 2010 at $6,840 each. During 2010, Selzer spent $38,400 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
(a) Prepare 2010 entries for Selzer using the expense warranty approach. Assume that Selzer estimates the total cost of servicing the warranties will be $153,600 for 2 years.
(b) Prepare 2010 entries for Selzer assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $160,400 relates to sales of warranty contracts. Selzer estimates the total cost of servicing the warranties will be $153,600 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs.