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Prepare necessary journal entries to record warranty costs

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Question - Wright Machinery Corporation manufactures automobile engines for major automobile producers. The engines sell for $920 per engine. In addition, customers have the option to purchase a service-type warranty for $73 per engine that protects against any defects for a period of 5 years. During 2016, Wright sold 8,000 engines to National Motors. National Motors purchased warranties on all of the engines purchased. During 2016, Wright repaired defective motors at a cost of $94,400. Prepare the necessary journal entries to record:

1. the sale of engines and service warranty on account during 2016 (one entry).

2. the warranty costs paid during 2016

3. the warranty revenue earned in 2016.

Reference no: EM131761622

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