Early in 2017, Indigo Equipment Company sold 500 Rollomatics during 2017 at $6,3

Question

Early in 2017, Indigo Equipment Company sold 500 Rollomatics during 2017 at $6,300 each. During 2017, Indigo spent $21,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Prepare 2017 entries for Indigo. Assume that Indigo estimates the total cost of servicing the warranties will be $52,000 for 2 years. (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.)

Date

Account Titles and Explanation

Debit

Credit

Prepare 2017 entries for Indigo assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $53,000 relates to sales of warranty contracts. Indigo estimates the total cost of servicing the warranties will be $52,000 for 2 years. Estimate revenues to be recognized on a straight-line basis. (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. Round intermediate calculations to 5 decimal places, e.g. 1.54657 answers to 0 decimal places, e.g. 5,125.)

(To record warranty revenue)

Explanation / Answer

1.

Date Account Title Debit($) Credit($) 31.12.2017 Cash 3150000     Sales Revenue 3150000 31.12.2017 Warranty Expense 52000       Warranty Payable 52000 31.12.2017 Warranty Payable 21000         Cash 21000 2.If Warranty not integral part of sale: Date Account Title Debit($) Credit($) 31.12.2017 Cash 3150000     Sales Revenue 3097000    Unearned Warranty Revenue 53000 31.12.2017 Warranty Expense 21000       Warranty Payable 21000 31.12.2017    Unearned Warranty Revenue 21404          Warranted Revenue 21404 (53000*21000/52000)

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