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Chapter 13: Q11E (page 695)

E13-11 (L03) (Warranties) Early in 2017, Sheryl Crow Equipment Company sold 500 Rollomatics during 2017 at \(6,000each. During 2017, Crow spent \)20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicabletransactions are on a cash basis.Instructions(a) Prepare 2017 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be \(55,000 for2 years.(b) Prepare 2017 entries for Crow assuming that the warranties are not an integral part of the sale (a service-type warranty).Assume that of the sales total, \)56,000 relates to sales of warranty contracts. Crow estimates the total cost of servicingthe warranties will be $55,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.

Short Answer

Expert verified

The sales revenue is $3,000,000.

Step by step solution

01

Meaning of Journal Entry

The journal entry meansrecording the business's daily transactionsin the books of accounts in the order in which they occurred.

02

Step 2:Showing journal entries forpart (a)

Sheryl Crow Equipment company
Journal entries

Date

Account and explanation

Debit ($)

Credit ($)

2017

Cash

3,000,000

Sales revenue

3,000,000

(Tosales revenue is recorded)

2017

Warranty expenses

55,000

Cash

20,000

Warranty liability ($55,000-$20,000)

35,000

(To warranty expenses paid are recorded)

03

Showing  journal entries for part (b)

Sheryl Crow Equipment company
Journal entries

Date

Account and explanation

Debit ($)

Credit ($)

2017

Cash

3,000,000

Sales revenue ($3,000,000 – $56,000)

2,944,000

Unearned warranty revenue

56,000

(Tosales revenue is recorded)

2017

Warranty expenses

20,000

Cash

20,000

(To warranty expenses paid are recorded)

2017

Unearned warranty revenue

20,364

Warranty revenue

20,364

(To recordunearned warranty revenue)

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Most popular questions from this chapter

Question: (Lessee-Lessor Entries, Operating Lease) Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of \(33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of \)240,000, and a cost to Cleveland of \(240,000. The estimated fair value of the crane is expected to be \)45,000 at the end of the lease term. No bargain-purchase or -renewal options are included in the contract. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is reasonably certain, and no uncertainties exist relative to unreimbursable lessor costs. Abriendo’s incremental borrowing rate is 10%, and Cleveland’s implicit interest rate of 9% is known to Abriendo.

Instructions

  1. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by both the lessee and the lessor.

Indicate how unrealised holding gains and losses should be reported for investments classified as trading and held-for-collection.

Southeast Airlines Inc. awards members of its Flightline program a second ticket at half price, valid for 2 years anywhere on its flight system, when a full-price ticket is purchased. How would you account for the full-fare and half-fare tickets?

(Fair Value Measurement Issues) Assume the same information as in E17-19 for Lilly Company. In addition,

assume that the investment in the Woods Inc. stock was sold during 2018 for \(195,000. On December 31, 2018, the following

information relates to its two remaining investments of common stock.

Cost Fair Value

(at purchase date) (at December 31)

Investment in Arroyo Company stock \)100,000 \(140,000

Investment in Lee Corporation stock 250,000 310,000

Total \)350,000 \(450,000

Net income before any security gains and losses for 2018 was \)905,000.

Instructions

(a) Compute the amount of net income or net loss that Lilly should report for 2018, taking into consideration Lilly’s securitytransactions for 2018.

(b) Prepare the journal entry to record unrealized gain or loss related to the investment in Arroyo Company stock atDecember 31, 2018.

(Equity Method) Parent Co. invested $1,000,000 in Sub Co. for 25% of its outstanding stock. Sub Co. pays out

40% of net income in dividends each year.

Instructions

Use the information in the following T-account for the investment in Sub to answer the following questions.

Investment in Sub Co.

1,000,000

110,000

44,000

(a) How much was Parent Co.’s share of Sub Co.’s net income for the year?

(b) What was Sub Co.’s total net income for the year?

(c) What were Sub Co.’s total dividends for the year?

(d) How much was Parent Co.’s share of Sub Co.’s dividends for the year?
See all solutions

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