Basis of costs incurred and estimated costs

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Reference no: EM13787709

(Warranties) Sheryl Crow Equipment Company sold 500 Rollomatics during 2014 at $6,000 each. During 2014, Crow spent $20,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

Instructions

a) Prepare 2014 entries for Crow using the expense warranty approach. Assume that Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years.

b) Prepare 2014 entries for Crow assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $150,000 relates to sales of warranty contracts. Crow estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues to be recognized on the basis of costs incurred and estimated costs.

Reference no: EM13787709

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