Trail Runner USA guarantees tires against defects for five years or 55,000 miles, whichever comes first.
Suppose Trail Runner USA can expect warranty costs during the five-year period to add up to 5% of sales. Assume that a Trail Runner USA dealer in Atlanta, Georgia, made sales of $564,000 during 2012. Trail Runner USA received cash for 40% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $18,000 during 2012.
1. Record the sales, warranty expense, and warranty payments for Trail Runner USA.
2. Post to the Estimated Warranty Payable T-account. The beginning balance was $13,000. At the end of 2012, how much in estimated warranty payable does Trail Runner USA owe to its customers?