Reference no: EM132774671

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:

• GGT reported a $270,000 provision for warranty payable on its December 31, 2020 balance sheet.
• GGT's sales for 2021 totalled $6,000,000 spread evenly through the year.
• The cost to GGT of meeting their warranty claims in 2021 was $480,000; $300,000 for parts and $180,000 for labour.
• GGT's sales for 2022 totalled $6,200,000 spread evenly through the year.
• The cost to GGT of meeting their warranty claims in 2022 was $468,000; $280,800 for parts and $187,200 for labour. Based on recent claims history, GGT revises their 2022 warranty provision to 9% of sales.

Required:

Problem a. Prepare summary journal entries to record warranty expense and warranty claims in 2021 and 2022.

Problem b. Determine the provision for warranty payable that GGT will report as a liability on December 31, 2022.