Barnstormers USA guarantees tires against defects for five years or 60,000 miles, whichever comes first. Suppose Barnstormers USA can expect warranty costs during the five-year period to add up to 7% of sales. Assume that a Barnstormers USA dealer in St. Paul, Minnesota, made sales of $460,000 during 2016. Barnstormers USA received cash for 15% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $19,700 during 2016.
1. Record the sales, warranty expense, and warranty payments for Barnstormers USA.
2. Post to the Estimated Warranty Payable T-account. The beginning balance was $16,000. At the end of 2016, how much in estimated warranty payable does Barnstormers USA owe to its customers?