Patagonia Corporation guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be 3 percent of sales.
Assume that a Patagonia dealer made sales totalling $600,000 during 2014, its first year of operations. The company received cash for 30 percent of the sales and notes receivable for the remainder. Warranty payments totalled $9,000 during 2014.
1. Record the sales, warranty expense, and warranty payments for Patagonia Corporation.
2. Post to the Estimated Warranty Payable T-account. At the end of 2014, what is the estimated warranty payable balance for Patagonia Corporation?