assurance warranty. Neuman management estimates that the probable cost of fulfilling the warranty will be $50,000. Between 1 May and 31 December 20X2, the actual warranty cost was $20,000. On 31 December 20X2, management decides that the probable additional warranty cost will be no more than $13,000. Between 1 January and 30 April 20X3, the additional cost was $11,000.

Required:

1. Prepare the entries concerning the sale and the warranty for 30 April 20X2 through 30 April 20X3.

2. Assume instead that the warranty now includes service and is sold separately with a stand alone value of $75,000. The product has a stand alone value of $580,000 and the total contract is $600,000. Prepare the relevant journal entries for 30 April 20X2 through 30 April 20X3.