Response to the following problem:
Ford, the automaker, guarantees its automobiles for three years or 36,000 miles, whichever comes first. Suppose Ford's experience indicates that the company can expect warranty costs to add up to 5% of sales.
Assume that Friendly Ford in Atlanta made sales totaling $600,000 during, March 20X7, its first month of operations. The company received cash for 30% of the sales and notes receivable for the remainder. Payments to satisfy customer warranty claims totaled $25,000 during 20X7.
1. Record the sales, warranty expense, and warranty payments for Friendly Ford.
2. Post to the Estimated Warranty Payable T-account. At the end of 20X7, how much in estimated warranty payable does Friendly Ford owe its customers?