Vaughn Corp. manufactures a wide range of equipment. The company’s biggest seller is the Whatchamacallit, which sells for $4,610 each. Starting in 2020 Whatchamacallit now carries with it a 2-year warranty against manufacturing defects. In addition to this warranty, customers can purchase an optional extended warranty for $1,640 extra that extends the Whatchamacallit’s warranty an additional 2 years. From experience with similar products, Vaughn Corp. has determined that each Whatchamacallit sold will average $900 in replacement parts (ignore labour costs for repairs). In 2020, the company sells 620 Whatchamacallits; 300 of these customers decide to purchase the optional extended warranty. Assuming the revenue is earned evenly over the two-year contract. Also in 2020, the company incurred $165,000 in total repair costs (replacement parts out of inventory).
Prepare the journal entry to record the sale of the Whatchamacallits and the extended warranties (sales would take place throughout the year; prepare only one entry at December 31, 2020 for the total sales). Ignore any cost of goods sold entry. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation |
Debit |
Credit |
Prepare the 2020 journal entries related to the product
warranties using the expense approach. (Credit account
titles are automatically indented when the amount is entered. Do
not indent manually. If no entry is required, select "No Entry" for
the account titles and enter 0 for the
amounts.)
Account Titles and Explanation |
Debit |
Credit |
(To record warranty expense) |
||
(To accrue warranty expense) |
Assuming that the extended warranty period begins January 1,
2022 for all customers who purchased the extended warranty, prepare
the journal entries at December 31, 2022 for the extended warranty.
Assume that $217,000 in warranty costs were incurred in 2022.
(Credit account titles are automatically indented when
the amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for
the amounts.)
Account Titles and Explanation |
Debit |
Credit |
(To record warranty revenue) |
||
(To record warranty expense) |
Vaughn Corp. manufactures a wide range of equipment. The company’s biggest seller is the Whatchamacallit, which...
Question 6 Pharoah Corp. manufactures a wide range of equipment. The company’s biggest seller is the Whatchamacallit, which sells for $4,700 each. Starting in 2020 Whatchamacallit now carries with it a 2-year warranty against manufacturing defects. In addition to this warranty, customers can purchase an optional extended warranty for $1,510 extra that extends the Whatchamacallit’s warranty an additional 2 years. From experience with similar products, Pharoah Corp. has determined that each Whatchamacallit sold will average $1,010 in replacement parts (ignore...
On January 2, 2020, Carla Company sells production equipment to Fargo Inc. for $48,000. Carla includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2020. During 2020, Carla incurs costs related to warranties of $930. At December 31, 2020, Carla estimates that $610 of warranty costs will be incurred in the second year of the warranty. Prepare the journal entry to record this transaction on...
Exercise 11-16 Presented below is information related to equipment owned by Vaughn Company at December 31, 2017 Cost Accumulated depreciation to date 1,010,000 Expected future net cash flows Fair value $9,090,000 7,070,000 4,848,000 Assume that Vaughn will continue to use this asset in the future. As of December 31, 2017, the equipment has a remaining useful life of 4 years. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. (If no entry...
On December 31, 2020, Crane Company sells production equipment to Larkspur Inc. for $53,700. Crane includes a one-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2020. Crane estimates the prices to be $49,800 for the equipment and $3,900 for the cost of warranty. Are the sale of the equipment and the warranty separate performance obligations within the contract? SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare...
Exercise 18-26 On January 2, 2017, Shamrock Company sells production equipment to Fargo Inc. for $48,000. Shamrock includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2017. During 2017, Shamrock incurs costs related to warranties of $870. At December 31, 2017, Shamrock estimates that $620 of warranty costs will be incurred in the second year of the warranty. Prepare the journal entry to record this...
Grouper Corporation sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2020, Grouper sold 20,000 warranty contracts at $114 each. The corporation spent $188,000 servicing warranties during 2020, and it estimates that an additional $940,000 will be spent in the future to service the warranties. Prepare Grouper's journal entry for the sale of contracts. Assume the service costs are inventory costs. (If no entry is required, select "No Entry" for the account titles and enter...
Marin Inc. sells portable computer equipment with a two-year warranty contract that requires the corporation to replace defective parts and provide the necessary repair labour. During 2020, the corporation sells for cash 380 computers at a unit price of $2,550. Ignore any cost of goods sold. Based on experience, the two-year warranty costs are estimated to be $166 for parts and $189 for labour per unit. (For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is...
On January 2, 2020, Blue Company sells production equipment to Fargo Inc. for $54,000. Blue includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2020. During 2020, Blue incurs costs related to warranties of $930. At December 31, 2020, Blue estimates that $680 of warranty costs will be incurred in the second year of the warranty. Prepare the journal entry to record this transaction on...
On January 2, 2020, Kingbird Company sells production equipment to Fargo Inc. for $55,000. Kingbird includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2020. During 2020, Kingbird incurs costs related to warranties of $940. At December 31, 2020, Kingbird estimates that $640 of warranty costs will be incurred in the second year of the warranty. Prepare the journal entry to record this transaction on...
On January 2, 2020, Coronado Company sells production equipment to Fargo Inc, for $48,000. Coronado includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2020. During 2020, Coronado incurs costs related to warranties of $900. At December 31, 2020, Coronado estimates that $620 of warranty costs will be incurred in the second year of the warranty. Prepare the journal entry to record this transaction on January...