Hipster Corrector guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 3% of sales.
Assume that the Hipster dealer in Colorado Springs made sales totaling $350,000 during 2016. The company received cash for 20% of the sales and notes receivable for the remainder. Warranty payments totaled $8,000 during 2016.
Requirements
1. Record the sales, warranty expense, and warranty payments for the company.
Ignore cost of goods sold.
2. Post to the Estimated Warranty Payable T-account. At the end of 2016, how much in Estimated Warranty Payable does the company owe? Assume the Estimated Warranty Payable is $0 on January 1, 2016.