Reference no: EM132684795

Headlands Hardware takes pride in being the "shop around the corner" that can compete with the big-box home improvement stores by providing good service from knowledgeable sales associates (many of whom are retired local handymen). Headlands has developed the following two revenue arrangements to enhance its relationships with customers and increase its bottom line.

1. Headlands sells a specialty portable winch that is popular with many of the local customers for use at their lake homes (putting docks in and out, launching boats, and so on). The Headlands winch is a standard-manufacture winch that Headlands modifies so it can be used for a variety of tasks. Headlands sold 60 of these winches during 2020 at a total price of $20,400, with a warranty guarantee that the product was free of any defects. The cost of winches sold is $16,300. The assurance warranties extend for a three-year period with an estimated cost of $2,600. In addition, Headlands sold extended warranties related to 30 Headlands winches for two years beyond the three-year period for $500 each.

2. To bolster its already strong customer base, Headlands implemented a customer loyalty program that rewards a customer with one loyalty point for every $10 of purchases on a select group of Headlands products. Each point is redeemable for a $1 discount on any purchases of Headlands merchandise in the following two years. During 2020, customers purchased select group products for $101,200 (all products are sold to provide a 45% gross profit) and earned 10,120 points redeemable for future purchases. The stand-alone selling price of the purchased products is $101,200. Based on prior experience with incentive programs like this, Headlands expects 8,800 points to be redeemed related to these sales. (Headlands appropriately uses this experience to estimate the value of future consideration related to loyalty points).

Problem 1: Do the journal entries for Headlands related to the sales of Headlands winches with warranties