Required:

1. Prepare journal entries that summarize the sales and any aspects of the warranty for 2006.

2. Prepare journal entries that summarize the sales and any aspects of the warranty for 2007.

Answer:

Requirement 1:
2006:
Accounts receivable	82,880
Sales (200 x $400)		80,000
Sales tax payable		2,880
($80,000 x 60% x 6%)
Warranty expense	800
Estimated warranty liability		800
(200 x 8% x $50)
Estimated warranty liability	300
Cash, supplies, parts, etc.		300
Requirement 2:
2007:
Accounts receivable	124,320
Sales (300 x $400)		120,000
Sales tax payable		4,320
(120,000 x 60% x 6%)
Warranty expense	1,200
Estimated warranty liability		1,200
(300 x 8% x $50)
Estimated warranty liability	500
Cash, supplies, parts, etc.		500

Learning Objective: 6 Level of Learning: 3

128. Albertson Corporation began a special promotion in July 2006 in an attempt to increase sales. A coupon was placed in each box of product. Customers could send in 5 coupons for a free prize. Each prize cost Albertson Corporation $3.00. Albertson's management estimated that 80% of the coupons would be redeemed. For the six months ended December 31, 2006, the following information is available:

Products sold	2,000,000 boxes
Prizes purchased	240,000
Coupons redeemed	560,000