Question $2.(25\%)$

Newman Tools sells an electrical law mower and offers a two$-$year warranty to its customers. Newman uses the service$-$type approach for the warranty. $810$ units of the law mower were sold in $2018$ at an average price of $$600$ per unit. The portion of sales revenues allocated to the warranty portion of the sale was $$110$ per unit. The company estimated that warranty costs would average $$95$ per lawn mower over two years. Actual costs incurred by Newman to honour warranty claims in $2018$ totalled $$19,200($ $$16,000$ for labor, $$3,000$ for parts and the rest cash$).$

Warranty revenues are recognized in each year based on the proportion of costs incurred out of the total estimated costs.

a$.$ Prepare journal entries to record all the transactions described above in $2018.(13$ marks$)$

b$.$ Assume Newman accounts for the warranty using the assurance$-$type approach. Prepare journal entries to record all the transactions described above in $2018.(12$ marks$)$