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Determine provision for warranty payable that ggt report

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Reference no: EM132570985

GOT Jetski Corp. has sold motorized watercraft for a number of years. GOT includes a three-year warranty on each watercraft they sell. Management estimates that the cost of providing the warranty coverage is 2% of sales in the first year and 3% of sales in each of years two and three.

Other facts follow:

  1. GGT reported a $270,000 provision for warranty payable on its December 31, 2017 balance sheet.
  2. GGT's sales for 2018 totaled $6,000,000 spread evenly through the year.
  3. The cost to GGT of meeting their warranty claims in 2018 was $480,000; $300,000 for parts and $180,000 for labour.
  4. GGT's sales for 2019 totaled $6,200,000 spread evenly through the year.
  5. The cost to GGT of meeting their warranty claims in 2019 was $468,000; $280,800 for parts and $187,200 for labour. Based on recent claims history, GGT revises their 2019 warranty provision to 9% of sales.

Required:

Question 1: Prepare summary journal entries to record warranty expense and warranty claims in 2018 and 2019.

Question 2: Determine the provision for warranty payable that GGT will report as a liability on December 31, 2019.

Reference no: EM132570985

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