K Co. which started business in 2014, manufactures equipment and provides a two year warranty for each unit sold. Sales, on account, for the year were 800 units, with a selling price of $2,000 each. Estimated warranty cost is $180 per machine. Actual costs of servicing warranties for the year were $90,000. If the service approach is used, the revenue allocated to the warranty for each unit sold is $200. The costs of servicing warranties are not incurred evenly. Warranty revenues are recognized based on the proportion of costs incurred out of total estimated costs.

1. Using the assurance-type (expense approach)

(a) Present the necessary journal entries to record all of the transactions described.

(b) Present the balances for the following accounts:

i. Warranty liability

ii. Sales revenue

iii. Warranty expense

Using the Service-type (revenue approach).

(a) Present the necessary journal entries to record all of the transactions described.

(b) Present the balances for the following accounts:

i. Unearned warranty revenue

ii. Sales revenue

iii. Warranty revenue

iv. Warranty expense