Trail Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail Runner dealer in Colorado Springs made sales totaling $600,000 during 2018. The company received cash for 20% of the sales and notes receivable for the remainder. Warranty payments totaled $10,000 during 2018.
Requirements
1. Record the sales, warranty expense, and warranty payments for the company. Ignore cost of goods sold.
2. Assume the Estimated Warranty Payable is $0 on January 1, 2018. Post the 2018 transactions to the Estimated Warranty Payable T-account. At the end of 2018, how much in Estimated Warranty Payable does the company owe?