Waterway Hardware takes pride in being the "shop around the corner" that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Waterway has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line. 1. Waterway sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, and so on). The Waterway winch is a standard-manufacture winch that Waterway modifies so it can be used for a variety of tasks. Waterway sold 55 of these winches during 2020 at a total price of $20,500, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $16,000. The assurance warranties extend for a three-year period with an estimated cost of $2,800. In addition, Waterway sold extended warranties related to 25 Waterway winches for two years beyond the three-year period for $410 each. 2. To bolster its already strong customer base, Waterway implemented a customer loyalty program that rewards a customer with one loyalty point for every $10 of purchases on a select group of Waterway products. Each point is redeemable for a $1 discount on any purchases of Waterway merchandise in the following two years. During 2020, customers purchased select group products for $128,800 (all products are sold to provide a 45% gross profit) and earned 12,880 points redeemable for future purchases. The stand-alone selling price of the purchased products is $128,800. Based on prior experience with incentive programs like this, Waterway expects 11,200 points to be redeemed related to these sales. (Waterway appropriately uses this experience to estimate the value of future consideration related to loyalty points). Prepare the journal entries for Waterway related to the sales of Waterway winches with warranties. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Account Titles and Explanation Debit Credit Cash Warranty Liability Sales Revenue Unearned Revenue No Entry (To record cash sale) Cost of Goods Sold Inventory (To record cost of goods sold) 30750 2800 16000 17700 10250 0 16000 Prepare the journal entries for the loyalty point sales for Waterway in 2020. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts Round percentage allocations to two decimal places, e.g. 15.25 and final answers to O decimal places, e.g. 5,275.) Account Titles and Explanation Debit Credit Cash Sales Revenue Sales Discounts (To record cash sales of products subject to loyalty points) Cost of Goods Sold Inventory (To record cost of goods sold) 100 70840 70840
