Question

Merritt Equipment Company sells computers for $1.220 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 950 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. Assume sales all occur at December 31, 2017 In 2018, Merritt incurred actual warranty costs relative to 2017 computer sales of $10,000 for parts and $15,000 for labor Part 1 Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2017 and 2018. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Debit Credit 1159000 Date Account Titles and Explanation 2017 AIR Swes Rev . (To record sale of computers) 2017 wasasty exp " " Liability 1,139,000 95000 95,000 (To record liability against warranty costs) 2018 Warranty labe 25,000 Inventory cash, invertoy, accrued payrol! eTextbook and Media 10,000 15000 List of Accounts Attempts: 0 of 2 used Save for Later Submit Answer Part 2 The transactions of part (ə) create what balance under current liabilities in the 2017 balance sheet? Current Liabilities $

part 2
please show work

Answer 1

Part 1 : Journal Enteries
Period	Particulars		Debit	Credit
2017	Accounts Receiveable/CASh/Bank		1159000
		To Sales		11590000
	( Being 950 computers are sold at the rae of $ 1220 each. So 950 x $ 1220)
2017	Warranty Expenses		95000
		To Warranty Liability		95000
	( Being it is estimated that total 2 years warrnty cost will be $ 40 for parts $ 60 for labour for each computer. So 950 x $ 100 )
2018	Warranty Liability		25000
		To Salary & Wages		15000
		To Inventory (Spare parts)		10000
	( Being actual Labour cost and sapare parts cost for Computer repairing for which warranty is given)
Part 2
In 2017	Calulation of Current Liabilities and Long term Liabilities for Warranty liabilites
	As per the question warranty is for 2 years for the current year sale ; 2017.
	As there is no other data available from the question for proprtion of repairing
	in each year for the next 2 years, we will divide warranty liabilty in two equal
	parts as Current liabilities and Long term Liabilities
	So Current Liabilities will be = 95000/2 = 47500
	And Long Term Liabilities will be =95000-47500= 47500
	In Balnce Sheet
	Under Current Liblities
		Warranty Liability	47500
	Under Long Term Liability
		Warranty Liability	47500