Question
Please show steps all steps, and where numbers are coming from. Newman Tools sells an electrical law mower and offers a two-year warranty to its
Please show steps all steps, and where numbers are coming from.
Newman Tools sells an electrical law mower and offers a two-year warranty to its customers.
Newman uses the service-type approach for the warranty. 810 units of the law mower were sold in
2018 at an average price of $600 per unit. The portion of sales revenues allocated to the warranty
portion of the sale was $110 per unit. The company estimated that warranty costs would average
$95 per lawn mower over two years. Actual costs incurred by Newman to honour warranty claims
in 2018 totalled $19,200 ($16,000 for labor, $3,000 for parts and the rest cash).
Warranty revenues are recognized in each year based on the proportion of costs incurred out of the
total estimated costs.
a. Prepare journal entries to record all the transactions described above in 2018
b. Assume Newman accounts for the warranty using the assurance-type approach. Prepare journal entries to record all the transactions described above in 2018.
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