Question
X company sells washing machines. The company had sales of $ 300,000 (600 machines) in the year. Along with each machine comes a 2-year warranty
X company sells washing machines. The company had sales of $ 300,000 (600 machines) in the year. Along with each machine comes a 2-year warranty on all parts and service. The company estimates that 4% of sales will be spent repairing machines. During the year, the company spent $ 3,000 on warranty work.
1. Assume that the company uses the Assurance Type Warranty Method. Record all the entries related to the sales and warranty for the year. (4 marks)
2. Assume that the company can never predict with accuracy the amount of warranty work that will be required. Prepare warranty entries for the year. (2 mark)
3. Assume that the company uses the Sales Type Warranty Method. Also, assume that the market value of a 2-year warranty is $80. Record all the entries related to the sales and warranty for the year. (4 marks)
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