E13-11B (Warranties) Gonzalez Equipment Company sold 600 Rollomatics during 2014 at $4,000 each. During 2014, Gonzalez spent $30,000 servicing the 2-year warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.
(a) Prepare 2014 entries for Gonzalez using the expense warranty approach. Assume that Gonzalez estimates the total cost of servicing the warranties will be $150,000 for 2 years.
(b) Prepare 2014 entries for Gonzalez assuming that the warranties are not an integral part of the sale. Assume that of the sales total, $200,000 relates to sales of warranty contracts. Gonzalez estimates the total cost of servicing the warranties will be $150,000 for 2 years. Estimate revenues earned on the basis of costs incurred and estimated costs.