(L03) (Warranties) Early in 2017, Sheryl Crow Equipment Company sold 500 Rollomatics during 2017 at $6,000 each. During 2017, Crow spent $20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Instructions

(a) Prepare 2017 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be $55,000 for 2 years.

(b) Prepare 2017 entries for Crow assuming that the warranties are not an integral part of the sale (a service-type warranty).

Assume that of the sales total, $56,000 relates to sales of warranty contracts. Crow estimates the total cost of servicing the warranties will be $55,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.