Gladiator USA, a tire manufacturer, guarantees its tires against defects for five years or 60,000 miles,...
Gladiator USA, a tire manufacturer, guarantees its tires against defects for five years or 60,000 miles, whichever comes first. Suppose Gladiator USA can expect warranty costs during the five-year period to add up to 5% of sales. Assume that a Gladiator USA dealer in Denver, Colorado, made sales of $ 643,000 during 2018.
Gladiator USA received cash for 15% of the sales and took notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $ 20,000 during 2018.
Record the sales, warranty expense, and warranty payments for Gladiator USA.
Homework Answers
| No. | Account Titles and Explanation | Debit | Credit |
| 1 | Cash (15% x $643000) | 96450 | |
| Notes receivable | 546550 | ||
| Sales revenue | 643000 | ||
| (To record sales) | |||
| 2 | Warranty expense (5% x $643000) | 32150 | |
| Warranty liability | 32150 | ||
| (To record warranty expense) | |||
| 3 | Warranty liability | 20000 | |
| Cash | 20000 | ||
| (To record warranty payments) |
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