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On January 2, 2017, Riverbed Company sells production equipment to Fargo Inc. for $54,000. Riverbed includes...

On January 2, 2017, Riverbed Company sells production equipment to Fargo Inc. for $54,000. Riverbed 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, Riverbed incurs costs related to warranties of $940. At December 31, 2017, Riverbed 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 January 2, 2017, and on December 31, 2017 (assuming financial statements are prepared on December 31, 2017).

Repeat the requirements for (a), assuming that in addition to the assurance warranty, Riverbed sold an extended warranty (service-type warranty) for an additional 2 years (2019–2020) for $760

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Ans: To record transactions on January 2, 2017, and on December 31, 2017 (assuming financial statements are prepared on December 31, 2017)

Date Account title and explanation Debit($) Credit($)
Jan 2,2017 Cash Dr. $54,000
Sales Revenue $54,000
( to record sale of equipment)
During 2017 Warranty expenses Dr. $940
Cash $940
(to record warranty expense)
Dec 31,2017 Warranty expense Dr. $680
Accrued warranty liability $680
( to record warranty liability)

B). Repeat the requirements for (a), assuming that in addition to the assurance warranty, Riverbed sold an extended warranty (service-type warranty) for an additional 2 years (2019–2020) for $760

Date Account title and explanation Debit($) Credit($)
Jan 2,2017 Cash Dr. $54,760
Sales revenue $54,000
Unearned warranty expense $760
( to record sale of equipment and extended warranty)
During 2017 Warranty expense Dr.   $940
To cash $940
( to record warranty expense)
Dec 31,2017 Warranty expense Dr. $680
Accrued warranty liability $680
( to record warranty liability)
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