The company computers that carry a - year warranty from the manufacturer. At the time of...
Homework Answers
Extended warranty additional charges are unearned warranty fees by the firm. They are accounted as part of unearned revenue. They are recognised as revenue in the period in which they are earned.
Journal entry after two years would be
Dr Unearned Warranty Fees
Cr Extended Warranty Fees (Revenue)
As per revenue recognition concept the unearned revenue should be recognised as revenue in the period when the performance obligation is met. Hence at end of the year 2 the warranty fees for year 2 would be recognised as revenue in the books of account
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Macrosoft Company sells a line of computers that carry a basic manufacturer’s warranty. In addition, customers...
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Carnes Electronics sells consumer electronics that carry a 90-day manufacturer's warranty. At the time of purchase,...
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Carnes Electronics sells consumer electronics that carry a 90-day manufacturer's warranty. At the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During the year, Carnes received $412,000 for these extended warranties (approximately evenly throughout the year) Required 1-a. Does this situation represent a provision? Yes No 1-b. How should it be accounted for? Revenue is deferred as a liability sale, and recognized on straight-line basis at the time of...
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Computers Galore Ltd. sells computers, computer accessories, and software. On its computer sales, the company provides a one-month warranty that is included in the cost of the computer. Claims under the warranties vary from replacing defective items to providing customers with refunds if they choose. During 2020, the estimated costs related to the one-month warranties was $39,600, of which 536,500 had been incurred before year end ($29,700 for replacement items and $6,800 in refunds). For an additional charge of $100,...
Ralston Manufacturing began operations in January 2018. Ralston sells computers that carry a two-year manufacturer's warranty against defects in workmanship. Ralston's management projects that 3% of the computers will require repair during the first year of the warranty while approximately 6% will require repair during the second year of the warranty. The computers sell for $1,100 each. The average cost to repair a computer is $150. The company sells the computers to retail customers who must pay a 6% sales...
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