Maxx Cars Ltd. (MCL) sold 8,300 cars during 2023 for total sales of $3,336,000 (assume in cash).

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Question:

Maxx Cars Ltd. ("MCL") sold 8,300 cars during 2023 for total sales of $3,336,000 (assume in cash). All sales at MCL includes a 1-year warranty period. Total cost of the vehicles sold in 2023 were $1,883,000. Management estimates that 5% of sales will result in warranty claims.

(a)

Prepare journal entries for Maxx Cars Ltd. to account for the sale and related warranties. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List all debit entries before credit entries.)

Account Titles and Explanation	Debit	Credit


(To record the sale)


(To record warranty liability)


(To record the cost of goods sold)

(b)

Independent of the journal entries in (a), prepare the journal entries assuming Maxx Ltd. sold extended 2-year warranties beyond the 1-year period for a total of $8,300 cash? (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List all debit entries before credit entries.)

Account Titles and Explanation	Debit	Credit





(To record the sale)


(To record the cost of goods sold)

(c)

From your answer in (b), prepare the adjusting journal entry to record the extended warranty at the end of 2025, assuming that the customer receives and benefits from the warranty evenly over time. Ignore any related expenses. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List debit entry before credit entry.)