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Early in 2020, Flint Equipment Company sold 400 Rollomatics at $6,400 each. During 2020, Flint spent $22,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
a. Prepare 2020 entries for Flint Equipment. Assume that Flint Equipment estimates the total cost of servicing the warranties will be $57,000 for 2 years.
b. Prepare 2017 entries for Flint Equipment assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $58,000 relates to sales of warranty contracts. Flint Equipment estimates the total cost of servicing the warranties will be $57,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.

Answer :

Answer:

Under the first scenario sales was  $2560000 while under the second scenario sales figure was divided into main sales  of $2502000 warranty sales of $58000.

Profits under the first scenario would be lower as the warranty costs were treated in one year but the reverse was the case in the second scenario with warranty costs been amortized over two years.

Explanation:

Kindly find attached spreadsheet showing the necessary entries under each scenario.

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