Early in 2022, Sheryl Crow Equipment sold 500 Rollomatics at €6,000 each. During 2022, 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 2022 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be €55,000 for 2 years.

b. Prepare 2022 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.