Question
Lumber Wheels Company, Inc. manufactures and distributes 74-Z speed bikes. These speed bikes have terrain sensors that connect to the riders' helmets, which is
Lumber Wheels Company, Inc. manufactures and distributes 74-Z speed bikes. These speed bikes have terrain sensors that connect to the riders' helmets, which is vital to their navigational success. Because of this feature, each speed bike is sold with an assurance-type warranty covering all parts and labor to protect against defects for a 2-year period. In addition, customers may purchase additional service-type warranties for three additional years. All sales were recorded in cash (ignore sales tax and COGS). The company expects that the service-type warranty will be used 60% in the first year, and 20% in the second and third years. There have been no claims against the service-type warranty prior to 2020. Aratech's sales, estimated and actual costs are presented below: 74-Z Speeder Bike Sales During 2017 $ 6,000,000 $ During 2018 7,500,000 $ During 2019 7,200,000 Estimated warranty cost (% of sales) 3% 3% 3% Cost of Additional Warranty (each) $ 1,000 $ Number of Additional Warranties Sold 280 1,000 $ 420 1,000 380 Actual costs related to purchase guarantee: Parts costs Labor costs (paid) Total repair costs Prepare the journal entries for 2017, 2018, and 2019 required to record the events related to the warranties using the accrual basis. *Note: insert more cells to complete your journal entries if necessary. $ 150,000 $ 172,000 15,000 42,000 $ 165,000 $ 214,000 Date Accounts Debit Credit
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