Emperor Pool Services provides pool cleaning and maintenance services to residential clients. It offers a one-year warranty on all services. Review each of the transactions, and prepare any necessary journal entries for each situation.
A. March 31: Emperor provides cleaning services for fifteen pools during the month of March at a sales price per pool of $550 cash. Emperor records warranty estimates when sales are recognized and bases warranty estimates on 2% of sales.
B. April 5: A customer files a warranty claim that Emperor honors in the amount of $100 cash.
C. April 13: Another customer, J. Jones, files a warranty claim that Emperor does not honor due to customer negligence.
D. June 8: J. Jones files a lawsuit requesting damages related to the dishonored warranty in the amount of $1,500. Emperor determines that the lawsuit is likely to end in the plaintiff’s favor and the $1,500 is a reasonable estimate for damages.