Euro Classics Ltd has been operating a successful business for many years specialising

in servicing and reconditioning repairs for classic European automobiles. Servicing

costs $750, while reconditioning engines costs $1450. The business has a reputation for good customer service, an important feature of which is the 12 months parts and labour written warranty provided with each service.

On 30 June 2019, the owners decided to introduce the practice of providing for warranty

expenses at year-end, thereby establishing a warranty expense in the year the vehicles

are serviced or reconditioned, and setting up a provision to cover future warranty

expenses as they occur. Past records have been examined, and it has been established

that, on average, one in twenty vehicles are subject to a claim under the warranty

offered. The costs of warranty have amounted to $400 for serviced vehicles and $960

for reconditioned vehicles. During the year ended 30 June 2019, 500 vehicles were

serviced and 260 engines were reconditioned.

During the year ended 30 June 2020, 22 serviced vehicles and 15 reconditioned engines

were repaired under the warranty. The costs of warranty work carried out by Euro

Classics were all paid in cash. During the year, 680 vehicles were serviced and 240

engines were reconditioned. At 30 June 2020, it was decided that warranty costs in the

following year would increase by 5%. (Ignore GST.)

Required

(a)

Show the general journal entries to record the services/reconditioning for the year,

and to establish the Provision for Warranty at 30 June 2019.

(b)

Show the general journal entries to record sales and the actual warranty costs

incurred during the year ended 30 June 2020.