Question 1 Euro Classics Ltd has been operating a successful

Question 1 Euro Classics Ltd has been operating a successful business for many years specialising in servicing and reconditioning repairs for classic European automobiles. Servicing costs $550, while reconditioning engines costs $1,050. The business has a reputation for good customer service, an important feature of which is the 12 months parts and labour written warranty provided with each service. On 30 June 2018, the owners decided to introduce the practice of providing for warranty expenses at year-end, thereby establishing a warranty expense in the year the vehicles are serviced or reconditioned, and setting up a provision to cover future warranty expenses as they occur. Past records have been examined, and it has been established that, on average, one in twenty vehicles are subject to a claim under the warranty offered. The costs of warranty have amounted to $300 for serviced vehicles and $720 for reconditioned vehicles. During the year ended 30 June 2018, 370 vehicles were serviced and 190 engines were reconditioned. During the year ended 30 June 2019, 16 serviced vehicles and 11 reconditioned engines were repaired under the warranty. The costs of warranty work carried out by Euro Classics were all paid in cash. During the year, 500 vehicles were serviced and 180 engines were reconditioned. AL 30 June 2019, it was decided that warranty costs in the following year would increase by 5%. (Ignore GST.) v (a) Show the general journal entries to record the services/reconditioning for the year, and to establish the provision for warranty at 30 June 2018. (Enter debit entries first, followed by credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Debit Credit Date Account titles and Explanation 2018 June 30 (To record sales for year 2018) June 30 (To provide for future warranty costs)

Solution

Solution:

Journal Entries
Date	Particulars	Debit	Credit
30-Jun-18	Cash A/c Dr	$403,000.00
	To Servicing Revenue (370*550)		$203,500.00
	To Reconditoning Revenue (190*1050)		$199,500.00
	(Being Sales recorded for year 2018 )
30-Jun-18	Warranty Expense A/c Dr	$12,390.00
	To Provision for Warranty Cost		$12,390.00
	(Being provison for warrnaty cost provided Servicing = 370/20*300 = $5,550 Reconditioning = 190/20*720 = $6,840)