Problem #$1$

Steele Windows manufactures, sells and installs custom windows for high$-$end homes. On February $20,$

$2020,$ Patrick Allen special orders windows totaling $$20,000($cost of $$12,000).$ The manufacture of the

windows will be completed by May, $2020$ and they come with a $5-$year warranty $($including parts and labor$)$

if the windows fail for any reason $($assurance$-$type$).$ Steele agrees to discount the total cost of the project

if Patrick also has them install the windows. The stand$-$alone price for the windows is $$20,000$ and the

installation is $$10,000.$ He agrees to the installation, which will be performed in June, $2020,$ and the total

discounted price for the entire job is $$27,000.$ Patrick makes a down payment of $$5,000$ on February $20,$

Steele manufactures the windows and performs the installation on time $($June $30,2020).$ At the time of

installation, Steele sells Patrick an extended warranty covering the replacement of glass $($parts and labor$)$

in the case of accidental breakage. The extended warranty $($service$-$type$)$ is for a $2-$year period $($starting

on the day of installation$)$ and costs $$2,500.$ At the time of installation, Patrick pays another $$20,000,$ with

the remainder due in $60$ days. Please separate revenue into three accounts; service revenue $($for labor$),$

product revenue $($for windows and assurance$-$type warranties$),$ and warranty revenue $($for service$-$type

warranties$).$

In November, $2020$ two of the windows fail. In accordance with the assurance$-$type warranty, Steele

replaces the two windows at a total cost of $$4,500($ $$2,700$ for windows, $$1,800$ for labor$).$ Steele has a

fiscal year$-$end of $\frac{12}{31}$ at which time they make adjustments for future warranty costs and unearned

warranty revenue. Steele estimates the next $12$ months of assurance$-$type warranty costs of $$2,000,$ with

regards to the Patrick Allen sale.

Required

A$.$ Record all journal and adjusting journal entries for Steele Windows in year $2020$ regarding the

sale to Patrick Allen. Note: Steele makes AJEs for estimated warranty expense only at year$-$end.