On April 30 20X2, Nexus Ltd sells a product to a customer for $600,000. The product carries a one-year assurance warranty. Nexus 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.

Requirements:

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 entries for 30 April 20X2 through 30 April 20X3.