Question

Problem 3 (Extended Warranties) assos Company sells televisions at an average price of $900 and also offers to each customer a separate 3. anty contract for S90 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3- year warranty costs as $20 for parts and $40 for labor and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs, Instructions (a) Record the entry for the sales of the televisions and the warranties. (b) What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified? (e) In 2018. Dos Passos Company incurred actual costs relative to 2017 television warranty sales of $2,000 for parts and S4,000 for labor. Record any necessary journal entries in 2018 relative to 2017 television warranties. (d) What amounts relative to the 2017 television warranties would appear on the December 31, 2018, balance sheet and how would they be classified?

Answer 1

B DE Amount in $ 2 A) Entry for sale of televisions and warranties 4 Dr Date 2017 Particulars Cash Alo Dr Warranty Expense for parts Alc Dr Warranty Expense for Labour Alc Dr To Accrued Warranty Liability for parts Alo To Accrued Warranty Liability for labour Alo To Sales Revenue Alc =(300'900)+(270'90) = (20) 270 = (40) 270 ON om = (20)*270 = (40)*270 =(300'900)+(270'90) 12 B) Accrued Warranty Liability for parts-5400, Accrued Warranty Liability for Labour-10,800 would appear under current liabilities in the balance sheet for year ended 2017 13 14 C) 15 Date 16 2018 Entry for expenditure on warranty repairs Particulars Accrued Warranty liability for parts Alc Dr Accrued Warranty liability for Labour Alo Dr To Cash Alc 17 2000 4000 18 6000 19 20 21 D) In 2018,remaining liability 34000 for parts as "Accrued Warranty Liability for parts" and 6800 for labour as "Accrued Warranty Liability for Labour" will be shown in Balance sheet under current liabilities

А B E F G H I K M N Amount in $ 2 A) Entry for sale of televisions and warranties 3 4 Date Particulars Dr c r 5 31-Dec-17 Cash A/c Dr 294300 Warranty Expense for parts A/c Dr 5400 Warranty Expense for Labour A/c Dr 10800 To Accrued Warranty Liability for parts A/C 5400 To Accrued Warranty Liability for labour A/C 10800 To Sales Revenue A/C 294300 11 12 B) Accrued Warranty Liability for parts-5400, Accrued Warranty Liability for Labour-10,800 would appear under current liabilities in the balance sheet for year ended 2017 13 14 C) Entry for expenditure on warranty repairs 15 Date Particulars 2018 Accrued Warranty liability for parts A/c Dr Accrued Warranty liability for Labour A/c Dr 4000 18 To Cash A/C 6000 19 20 D) In 2018, remaining liability 34000 for parts as "Accrued Warranty Liability for parts" and 6800 for labour as "Accrued Warranty Liability for Labour" will be shown in Balance sheet under current liabilities 21 2000 16 17