Question

Computers Galore Ltd. sells computers, computer accessories, and software. On its computer sales, the company provides a one-month warranty that is included in the cost of the computer. Claims under the warranties vary from replacing defective items to providing customers with refunds if they choose. During 2020, the estimated costs related to the one-month warranties was $39,600, of which 536,500 had been incurred before year end ($29,700 for replacement items and $6,800 in refunds). For an additional charge of $100, Computers Galore also offers extended warranty coverage for two years on its computers. This amount is expected to cover the costs associated with the extended warranties. During 2020, Computers Galore sold 740 two-year warranties. The costs incurred during the year for replacements under these warranties amounted to $32,000. Based on experience, the company estimates that its total warranty costs over the two- year coverage period will be $62,500, which it expects will occur evenly over the warranty period. (al) Prepare journal entries to record the warranty transactions for 2020. (Enter debit entries first followed by credit entries. 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 o for the amounts.) No. Account and explanation Debit Credit 1. Warranty Expense 39600 | Warranty Provision JO 39600 39600 (To record estimated cost related to 1 month warranties.) 2. Warranty Provision Cash JO 2500 (To record cost incurred related to 1 month warranties.) 3. Cash II Warranty Provision (To record sale of 2 year extended warranties.) 4. || Warranty Provision 32000 L 32000 X Cash C (To record cost incurred related to 2 year extended warranties.) Warranty Provision | Service Revenue (To record service revenue.)

Answer 1

No.	Account and explanation	Debit	Credit
1	Warranty expense	39600
	Warranty provision		39600
	(To record estimated cost related to 1 month warranties)
2	Warranty provision	36500
	Cash		6800
	Inventory		29700
	(To record cost incurred related to 1 month warranties)
3	Cash (740 x $100)	74000
	Unearned service revenue		74000
	(To record sale of 2 year extended warranties)
4	Warranty expense	32000
	Inventory		32000
	(To record cost incurred related to 2 year extended warranties)
5	Unearned service revenue	37000
	Service revenue ($74000/2)		37000
	(To record service revenue)