GOT Jetski Corp

Essay

GOT Jetski Corp.has sold motorized watercraft for a number of years.GOT includes a three-year warranty on each watercraft they sell.Management estimates that the cost of providing the warranty coverage is 2% of sales in the first year and 3% of sales in each of years two and three.Other facts follow:
• GGT reported a $270,000 provision for warranty payable on its December 31,2012 balance sheet.
• GGT's sales for 2013 totalled $6,000,000 spread evenly through the year.
• The cost to GGT of meeting their warranty claims in 2013 was $480,000; $300,000 for parts and $180,000 for labour.
• GGT's sales for 2014 totalled $6,200,000 spread evenly through the year.
• The cost to GGT of meeting their warranty claims in 2014 was $468,000; $280,800 for parts and $187,200 for labour.Based on recent claims history,GGT revises their 2014 warranty provision to 9% of sales.
Requirements:
a.Prepare summary journal entries to record warranty expense and warranty claims in 2013 and 2014.
b.Determine the provision for warranty payable that GGT will report as a liability on December 31,2014.