Warranties

11. (Warranties) Sheryl Crow Equipment Company sold 500 Rollomatics during 2004 at
$6,000 each. During 2004, Crow spent $20,000 servicing the 2-year warranties that
accompany the Rollomatic. All applicable transactions are on a cash basis.
Instructions
a. Prepare 2004 entries for Crow using the expense warranty approach. Assume
that Crow estimates the total cost of servicing the warranties will be $120,000 for
2 years.
b. Prepare 2004 entries for Crow assuming that the warranties are not an integral
part of the sale. Assume that of the sales total, $150,000 relates to sales of warranty
contracts. Crow 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