Question

Problem 13-10 Tamarisk 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 2017, the corporation sells for cash 383 computers at a unit price of $2,500. Based on experience, the two-year warranty costs are estimated to be $168 for parts and $172 for labour per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the equipment, and no portion of the sales price is allocated to warranty sales. Tamarisk follows ASPE. Record the 2017 journal entry, assuming the cash basis is used to account for the warranties. (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

Answer 1

Ans: Tamarisk Inc., sold Portable computer,

A) Cash Basis used for recording entries

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2017	Bank A/c Dr. (2,500*383)	957,900
	To Sales A/c  (2,500*383)		957,900
	(Being entry for sale of portable computer)

There will be no entry for provision warranty cost will be recorded as warranty cost is to be recorded when it occur.

B)  Accrual Basis used for recording entries

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2017	Bank A/c Dr. (2,500*383)	957,900
	To Sales A/c  (2,500*383)		957,900
	(Being entry for sale of portable computer)
31.Dec 2017	Warranty Expenses A/c Dr.	130,220
	To Provision For Warranty Expenses A/c		130,220
	(being warranty expenses recorded)
31.Dec 2017	Profit & loss A/c Dr.	130,220
	To Warranty Expenses A/c		130,220
	(Being entry for transfer of warranty expenses to Profit and Loss A/c)

Warranty Expenses =(( $168 + $172)*383)

= $ 130,220

c) There is no presentation of Warranty expenses in Balance sheet in case of Warranty expenses recorded in cash basis.

Warranty expenses will be shown as Current Liabilities in the balance sheet when Warranty expenses are recorded in accrued basis.

d) Journal Entries

Warranty expenses incurred = Labour + Parts

= $ 41,545 + $ 23,408

= $64,953

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2018	Warranty Expenses A/c Dr.	64,953
	To Bank A/c		64,953
	( Being Warranty expenses Paid )

e) Journal Entries Warranty Expenses recorded on Accrual Basis

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2018	Provision for Warranty Expenses A/c Dr.	64,953
	To Bank A/c		64,953
	( Being Warranty expenses Paid )