Craig decided to start offering assurance-type warranties to increase product sales. He feels this will help increase sales volume and add positive word of mouth for his business. He will also offer service-type warranties on several of the high end products that he sells. After discussing with him the pros and cons, you both agree to record these warranty expenses and liabilities at the end of each quarter. Prepare the journal entries for the following: 1. Craig Design and Landscaping offers 1 year assurance-type warranties on each tree sold over $500. Craig also sells a 3-year service-type warranty for each tree sold over $500. 2. Craig sold $5,000 worth of service-type warranties and received cash during the 3rd quarter of this year. These warranties are effective after the one year assurance-type warranty expires. Record the journal entry for this warranty transaction. 3. You and Craig estimate that 5% of customers will require assurance- type warranty replacement. Sales for trees over $500 for the quarter are $27,500. Record the journal entry for this warranty accrual. 4. Craig’s Design has incurred costs of $1,100 this quarter related to the warranties. $500 for replacement of trees (use supplies account) and $600 for labor costs. The labor costs are unpaid. Record the journal entry for the actual expenses incurred this quarter.
Craig decided to start offering assurance-type warranties to increase product sales. He feels this will help increase sales volume and add positive word of mouth for his business. He will also offer service-type warranties on several of the high end products that he sells. After discussing with him the pros and cons, you both agree to record these warranty expenses and liabilities at the end of each quarter.
Prepare the journal entries for the following:
1. Craig Design and Landscaping offers 1 year assurance-type warranties on each tree sold over $500. Craig also sells a 3-year service-type warranty for each tree sold over $500.
2. Craig sold $5,000 worth of service-type warranties and received cash during the 3rd quarter of this year. These warranties are effective after the one year assurance-type warranty expires. Record the
3. You and Craig estimate that 5% of customers will require assurance- type warranty replacement. Sales for trees over $500 for the quarter are $27,500. Record the journal entry for this warranty accrual.
4. Craig’s Design has incurred costs of $1,100 this quarter related to the warranties. $500 for replacement of trees (use supplies account) and $600 for labor costs. The labor costs are unpaid. Record the journal entry for the actual expenses incurred this quarter.
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