Dynamo Corporation manufactures toasters. Each toaster comes with a 5-year assurance-type warranty. The toasters sell for $40 each. During Year 1, Dynamo sells 500 toasters, for cash. Past experience shows that the average warranty costs are $5 each or $2,500 for these toasters. In Year 1, Dynamo pays $500 cash for warranty costs on the toasters sold that year.

Required:

Prepare Dynamos journal entries related to the sales and warranty in Year 1.

CHART OF ACCOUNTS

Dynamo Corporation

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
141	Inventory
152	Prepaid Insurance
181	Equipment
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
240	Estimated Warranty Liability
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings

	REVENUE
411	Sales Revenue

	EXPENSES
500	Cost of Goods Sold
511	Insurance Expense
512	Utilities Expense
521	Salaries Expense
532	Bad Debt Expense
540	Interest Expense
541	Depreciation Expense
551	Warranty Expense
559	Miscellaneous Expenses
910	Income Tax Expense

Prepare Dynamos journal entries related to the sales and warranty in Year 1 on December 31. Additional Instruction

PAGE 9

GENERAL JOURNAL

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1
2
3
4
5
6