Selzer Equipment Company sold 542 Rollomatics during 2012 at $6,950 each. During

Question

Selzer Equipment Company sold 542 Rollomatics during 2012 at $6,950 each. During 2012, Selzer spent $33,400 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis. (a) Prepare 2012 entries for Selzer using the expense warranty approach. Assume that Selzer estimates the total cost of servicing the warranties will be $167,000 for 2 years. Use "Inventory" account to record the warranty expense. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit 1. (To record the sale) 2. (To record the warranty expense) 3. (To record the warranty liabilitiy) (b) Prepare 2012 entries for Selzer assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $163,700 relates to sales of warranty contracts. Selzer estimates the total cost of servicing the warranties will be $167,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs. Use "Inventory" account to record the warranty expense. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) No. Account Titles and Explanation Debit Credit 1. (To record the sale) 2. (To record the warranty expense) 3. (To record the estimated revenues)

Explanation / Answer

(A) mmddyy Cash Dr $3,766,900 Sales (542 X $6,950) CR $3,766,900 mmddyy Warranty Expense Dr 33400 Cash Cr 33400 mmddyy Warranty Expense Dr $133,600 Estimated Liability Under Warranties ($167,000 – $33400) Cr $133,600 (b) mmddyy Cash Dr $3,766,900 Sales Cr $3,603,200 Unearned Warranty Revenue Cr 163,700 mmddyy Warranty Expense Dr 33400 Cash Cr 33400 mmddyy Unearned Warranty Revenue Dr $32,740 Warranty Revenue [$163700 X ($33400/$167,000)] Cr $32,740

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