Cléroux Corporation sold 150 colour laser copiers in 2014 for $4,000 each, including a one-year warranty. Maintenance on each machine during the warranty period averages $300.
Instructions
(a) Prepare entries to record the machine sales and the related warranty costs under the expense approach. Actual warranty costs incurred in 2014 were $17,000.
(b) Based on the information above and assuming that the cash basis is used, prepare the appropriate entries.
(c) Is the method in (b) ever acceptable under GAAP? Explain.