Lake Country Boats guarantees its boats for three years or 1,500 hours, whichever comes first. Past experience of other boat makers indicates that Lake Country can expect warranty costs will equal 6% of sales. Assume in its first year Lake Country Boats had sales totalling $600,000, receiving cash for 30% of sales and notes receivable for the remainder. Warranty payments totalled $22,000 during the year.

Requirement

1. Record the sales, warranty expense, and warranty payments for Lake Country Boats.

2. What amount of warranty expense will Lake Country report during its first year of operations? Does the warranty expense for the year equal the year’s cash payments for warranties?