Question

Exercise 18-26

On January 2, 2017, Shamrock Company sells production equipment to Fargo Inc. for $48,000. Shamrock 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, Shamrock incurs costs related to warranties of $870. At December 31, 2017, Shamrock estimates that $620 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). (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.)

Date

Account Titles and Explanation

Debit

Credit

LINK TO TEXT

Repeat the requirements for (a), assuming that in addition to the assurance warranty, Shamrock sold an extended warranty (service-type warranty) for an additional 2 years (2019–2020) for $780. (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.)

Date

Account Titles and Explanation

Debit

Credit

Exercise 18-26

On January 2, 2017, Shamrock Company sells production equipment to Fargo Inc. for $48,000. Shamrock 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, Shamrock incurs costs related to warranties of $870. At December 31, 2017, Shamrock estimates that $620 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). (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.)

Date

Account Titles and Explanation

Debit

Credit

LINK TO TEXT

Repeat the requirements for (a), assuming that in addition to the assurance warranty, Shamrock sold an extended warranty (service-type warranty) for an additional 2 years (2019–2020) for $780. (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.)

Date

Account Titles and Explanation

Debit

Credit

Answer 1

Solution:

Exercise 18-26 Journal Entries in the books of Shamrock Company.

Date	Account Titles and Explanation	Debit	Credit
Jan. 2`2017	Cash	$             48,000.00
	Sales Revenue		$   48,000.00
	(Revenue recognised for sales made)
Dec. 31`2017	Warranty Expenses	$                   870.00
	Cash		$         870.00
	(Warranty Expenses incurred)
Dec. 31`2017	Warranty Expenses	$                   620.00
	Warranty Liability		$         620.00
	(Warranty Expenses estimated for next year)

Journal entry to record 2 years warranty sold

Date	Account Titles and Explanation	Debit	Credit
Dec. 31`2017	Cash	$                   780.00
	Unearned Service Revenue		$         780.00
	(Service type warranty sold for next 2 years

Note:

1) Warranty expenses are incurred during 2017 is $ 870 but exact date is not mentioned in the question. so year end date is taken.