Question

PA7. LO 12.3 Emperor Pool Services provides pool cleaning and maintenance services to residential clients. It offers a one-year warranty on all services. Review each of the transactions, and prepare any necessary journal entries for each situation.

1. March 31: Emperor provides cleaning services for fifteen pools during the month of March at a sales price per pool of $550 cash. Emperor records warranty estimates when sales are recognized and bases warranty estimates on 2% of sales.
2. April 5: A customer files a warranty claim that Emperor honors in the amount of $100 cash.
3. April 13: Another customer, J. Jones, files a warranty claim that Emperor does not honor due to customer negligence.
4. June 8: J. Jones files a lawsuit requesting damages related to the dishonored warranty in the amount of $1,500. Emperor determines that the lawsuit is likely to end in the plaintiff’s favor and the $1,500 is a reasonable estimate for damages.

Answer 1

A.	Cleaning and maintenance services provided of $ 8250 ($ 550 x 15) in cash
	Journal entry :
	Cash Dr		8250
	To Cleaning services		8250
	For provision of warranty - 2% of sales
	Journal entry :
	Warranty expense Dr	165
	To Provision of warranty	165
B.	Customer files a warranty claim that Emperor honors in the amount of $100 cash
	Journal entry :
	Provision of warranty Dr	100
	To Cash			100
	(being warranty claim paid in cash)
C.	No Entry
D.	Disclose the fact in a note as a disclosure to financial statements