Early in 2019, Sheryl Crow Equipment sold 500 Rollomatics during 2019 at €6,000 each. During 2019, Crow spent €20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
Instructions
a. Prepare 2019 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be €55,000 for 2 years.
b. Prepare 2019 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 servicing the warranties will be €55,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.