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1.
Prepare the journal entry to record the sale of the Whatchamacallits and the extended warranties |
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2.
Prepare the 2020 journal entries related to the product warranties using the expense approach.
Question 6 Pharoah Corp. manufactures a wide range of equipment. The company’s biggest seller is the...
Vaughn Corp. manufactures a wide range of equipment. The company’s biggest seller is the Whatchamacallit, which sells for $4,610 each. Starting in 2020 Whatchamacallit now carries with it a 2-year warranty against manufacturing defects. In addition to this warranty, customers can purchase an optional extended warranty for $1,640 extra that extends the Whatchamacallit’s warranty an additional 2 years. From experience with similar products, Vaughn Corp. has determined that each Whatchamacallit sold will average $900 in replacement parts (ignore labour costs...
Pharoah Company sells televisions at an average price of $925 and also offers to each customer a separate 3-year warranty contract for $93 that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 288 televisions and 248 warranty contracts for cash. It estimates the 3-year warranty costs as $21 for parts and $41 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2020, and straight-line recognition of warranty...
Pharoah Company purchased equipment in 2020 for $104,000 and estimated an $8,000 salvage value at the end of the equipment's 10-year useful life. At December 31, 2021, there was $67,200 in the Accumulated Depreciation account for this equipment using the straight-line method of depreciation. On March 31, 2022, the equipment was sold for $21,000. Prepare the appropriate journal entries to remove the equipment from the books of Pharoah Company on March 31, 2022. (Credit account titles are automatically indented when...
On January 2, 2020, Carla Company sells production equipment to Fargo Inc. for $48,000. Carla 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, 2020. During 2020, Carla incurs costs related to warranties of $930. At December 31, 2020, Carla estimates that $610 of warranty costs will be incurred in the second year of the warranty. Prepare the journal entry to record this transaction on...
On December 31, 2020, Crane Company sells production equipment to Larkspur Inc. for $53,700. Crane includes a one-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2020. Crane estimates the prices to be $49,800 for the equipment and $3,900 for the cost of warranty. Are the sale of the equipment and the warranty separate performance obligations within the contract? SHOW LIST OF ACCOUNTS LINK TO TEXT Prepare...
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...
Pharoah Financial Services performs bookkeeping and tax-reporting services to startup companies in the Oconomowoc area. On January 1, 2020, Pharoah entered into a 3-year service contract with Walleye Tech. Walleye promises to pay $9,500 at the beginning of each year, which at contract inception is the standalone selling price for these services. At the end of the second year, the contract is modified and the fee for the third year of services is reduced to $7,500. In addition, Walleye agrees...
Grouper Corporation sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2020, Grouper sold 20,000 warranty contracts at $114 each. The corporation spent $188,000 servicing warranties during 2020, and it estimates that an additional $940,000 will be spent in the future to service the warranties. Prepare Grouper's journal entry for the sale of contracts. Assume the service costs are inventory costs. (If no entry is required, select "No Entry" for the account titles and enter...
On January 2, 2020, Coronado Company sells production equipment to Fargo Inc, for $48,000. Coronado 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, 2020. During 2020, Coronado incurs costs related to warranties of $900. At December 31, 2020, Coronado 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...
Marin 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 2020, the corporation sells for cash 380 computers at a unit price of $2,550. Ignore any cost of goods sold. Based on experience, the two-year warranty costs are estimated to be $166 for parts and $189 for labour per unit. (For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is...