Problem 1

An entity sells machinery at a price of $9,000. The machinery comes with a one-year warranty at no extra cost to the customer. In addition, an extended warranty is also sold for $3,000 that covers years 2-3. Customers can purchase the extended warranty at any time within the first year of purchase.

If a customer purchases the extended warranty at the same time as the machinery, they can purchase it for a total price of $10,300.

Expenses incurred in servicing the extended warranty are expected to be incurred relatively evenly over the two-year extended warranty period.

Required

Write all journal entries relative to the above for a sale of machinery and extended warranty taking place on January 2, 20x7.