Question

Ivanhoe Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2017, the corporation sells for cash 404 computers at a unit price of $2,440. On the basis of past experience, the 2-year warranty costs are estimated to be $165 for parts and $205 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer. Record any necessary journal entries in 2017. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified? Ivanhoe Corporation Balance Sheet (Partial) December 31, 2017 In 2018, the actual warranty costs to Ivanhoe Corporation were $22,210 for parts and $38,080 for labor. Record any necessary journal entry in 2018. (If no entry is required, select "No Entry" for the account tities and enter o for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit

Answer 1

Journal entries in 2017
Account Titles and Explanation	Debit	Credit
Cash                                  [404 units x $2,440 per unit]	$985,760
Warranty expense             [404 units x ($165 + $205)]	$149,480
Sales revenue                [404 units x $2,440 per unit]		$985,760
Warranty liability          [404 units x ($165 + $205)]		$149,480

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Ivanhoe Corporation
Balance Sheet (Partial)
December 31, 2017
Current Liabilities
Warranty liability           [For the year 2018 = $149,480 / 2 years]	$74,740
Long-term Liabilities
Warranty liability           [For the year 2019 = $149,480 / 2 years]	$74,740

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Journal entries in 2018
Account Titles and Explanation	Debit	Credit
Warranty liability          [Total = $22,210 + $38,080]	$60,290
Inventory		$22,210
Wages payable		$38,080