You have determined that sales on account for the year were 1,000 units, with a selling price of $3,000 each. Ignore any cost of goods sold. The warranty is for two years, and the estimated warranty cost averages $200 per machine. Actual costs of servicing warranties for the year were $105,000.

You have done some research and determined that, if the service-type approach were to be used, the portion of revenue allocated to the warranty portion of the sale would be $350. Because the costs of servicing warranties are not incurred evenly, warranty revenues are recognized based on the proportion of costs incurred out of the total estimated costs.

Instructions

1. For both the assurance-type and the service-type approach, prepare the necessary journal entries to record all of the transactions described, and determine the warranty liability and expense amounts for 2020. Do not round intermediate calculations and round final amounts to the nearest dollar. Payments for completed warranty repairs are paid in cash.