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On September 11, 2017, Home Store sells a mower (that costs $370) for $600 cash with a one-year warranty that covers parts. Warranty expense is estimated at 9% of sales. On July 24, 2018, the mower is brought in for repairs covered under the warranty requiring $42 in materials taken from the Repair Parts Inventory. Prepare the September 11, 2017, entry to record the mower sale, and the July 24, 2018, entry to record the warranty repairs. (Round your answers to 2 decimal places.)

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Answer:

September 11 2017

Dr Cash                     600

 Cr Sales revenue     600

(to record sales revenue on cash)

Dr Cost of good sold      370

 Cr Inventory                   370

(to record cost of good sold)

Dr Warranty expenses        54

Cr Warranty liabilities          54

(to accrue for warranty liabilities)

Jul 24 2018

Dr Warranty liabilities         42

Cr Inventory                       42

(to record warranty services provided which was accrued)

Explanation:

11 Sep 2017:

- As sell of $600 is made on cash with the cost of good sold is $370, we Dr Cash 600 and Dr Cost of good sold 370 to record increase in cash and in Cost of good sold; and Cr Sales 600 and Cr Inventory 370 to record increase in sales and decrease in Inventory delivered.

- Warranty expenses should be recorded at the time to ensure matching of cost and revenue. Warranty expenses is estimated at 9% of sales, so it will be 9% x 600 = $54. Expenses is recorded and liabilities is accrued.

Jul 24 2018:

Warranty liabilities which was accrued actually occurs. So we Dr Liability by the expenses actually incurred and Cr Inventory consumed for the warranty services $42.

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