Question

trekster equipment guarantees its snowmobiles for three years. company experience indicates that warranty costs will be approximately 5% of sales. assume that the trekster equipment dealer in colorado springs made sales totaling $800,000 during 2025. the company received cash for 20% of the sales and notes receivable for the remainder. warranty payments totaled $12,000 during 2025.
read the requirements.
requirement 1. record the sales, warranty expense, and warranty payments for the company. ignore cost of goods sold. (record debits first, then credits. select the explanation on the last line of the journal entry table.)
begin with the entry to record the sales. (prepare a single, compound entry for this transaction.)

Explanation:

Step1: Record the sales

Cash received = \(800000\times20\%=\$160000\)
Notes receivable = \(800000 - 160000=\$640000\)
Debit Cash \(160000\), debit Notes Receivable \(640000\), credit Sales Revenue \(800000\)

Step2: Record the warranty expense

Warranty expense = \(800000\times5\%=\$40000\)
Debit Warranty Expense \(40000\), credit Estimated Warranty Payable \(40000\)

Step3: Record the warranty payments

Debit Estimated Warranty Payable \(12000\), credit Cash \(12000\)

Answer:

Date	Accounts and Explanation	Debit	Credit
	Notes Receivable	\(640000\)
	Sales Revenue		\(800000\)
2025	Warranty Expense	\(40000\)
	Estimated Warranty Payable		\(40000\)
2025	Estimated Warranty Payable	\(12000\)
	Cash		\(12000\)