Question
Taylor's Industries prepares financials on a calendar year basis and sold on credit a tractor for a total price of $95,000 at the beginning of
Taylor's Industries prepares financials on a calendar year basis and sold on credit a tractor for a total price of $95,000 at the beginning of January 2017 which included both the manufacturers 3-year manufacturers warranty and an extended warranty for an additional 3 years after the end of the manufacturers warranty expires. The extended warranty was $8,700 of the total price.
Taylor's Industries has estimated the manufacturers 3-year warranty will cause the company to incur costs of $4,000 over the course of the three years. In 2017, Taylor's Industries incurred actual warranty costs relative to the tractor of $1,300, all of which it paid in cash. Taylor's Industries policy is to record revenue under its extended warranties using the straight line method.
1. Prepare all journal entries necessary for Taylor's Industries in 2017.
2. What entry will Taylor record to recognize revenue in the first year covered by its extended warranty?
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