Chapter 4
Current Liabilities
196
AP-11B (
8
)
Los Amigos Manufacturing builds and sells cars. On January 1, 2016, the company sold 150
cars for $30,000 each, on account. The cost to build each car is $7,000. Los Amigos does not
automatically include warranties with the purchase of the car; however, the customer has the
option to purchase the warranty separately. Los Amigos sold a four-year warranty for each
car sold. Each warranty costs $2,000. Prepare the journal entries for the sale of the cars and
warranties. Assume the cars were purchased on account and that the warranties were paid for
in cash. Los Amigos uses a perpetual inventory system.
Date
Account Title and Explanation
Debit
Credit
AP-12B (
8
)
PanPress Company sold four-year extended warranties on January 1, 2016 and received
$300,000 cash. Record the journal entry related to unearned warranty revenue at the end of
the first year, on December 31, 2016.
Date
Account Title and Explanation
Debit
Credit
