Henry Corporation sells home entertainment systems. The
corporation also offers to sell its customers a two-year warranty
contract as a separate service. During 2017, Henry sold 20,000
warranty contracts at $99 each. The corporation spent $180,000
servicing warranties during 2017, and it estimates that an
additional $900,000 will be spent in the future to service the
warranties. Henry recognizes warranty revenue based on the
proportion of costs incurred out of total estimated costs. Prepare
Henry's journal entries for (a) the sale of warranty contracts, (b)
the cost of servicing the warranties, and (c) the recognition of
warranty revenue under the revenue approach used for service-type
warranties.
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