Independent Situation (11 marks)
Pronghorn Machinery Co. started operations in 2023 and manufactures equipment to a very high standard of quality, however, it must still provide a warranty
for each unit sold, and there are instances where the machines do require repair after they have been put into use.
You have determined that sales on account for the year were 1,000 units, with a selling price of $3,100 each. Ignore any cost of goods sold. The warranty is for
two years, and the estimated warranty cost averages $180 per machine. Actual costs of servicing warranties for the year were $108,000. You have done some
research and determined that, if the service-type approach were to be used, the portion of revenue allocated to the warranty portion of the sale would be
$5.30. Because the costs of servicing warranties are not incurred evenly, warranty revenues are recognized based on the proportion of costs incurred out of the
total estimated costs.
Instructions
For the service-type approach, prepare the necessary journal entries to record all of the transactions described. (6 marks)
