(Warranties) Selzer Equipment Company sold 500 Rollomatics during 2012 at $6,000 each. During 2012, Selzer spent $30,000 servicing the 2 year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
Instructions
(a) Prepare 2012 entries for Selzer using the expense warranty approach. Assume that Selzer estimates the total cost of servicing the warranties will be $120,000 for 2 years.
(b) Prepare 2012 entries for Selzer assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $160,000 relates to sales of warranty contracts. Selzer estimates the total cost of servicing the warranties will be $120,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs.