Question

Pearl Company sells televisions at an average price of $887 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 318 televisions and 238 warranty contracts for cash. It estimates the 3-year warranty costs as $22 for parts and $42 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2020, and straight-line recognition of warranty revenues occurs.

In 2021, Pearl Company incurred actual costs relative to 2020 television warranty sales of $2,190 for parts and $4,010 for labor.

Record any necessary journal entries in 2021 relative to 2020 television warranties. Use "Inventory" account to record the warranty expense. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Account Titles and Explanation	Debit	Credit
(To record the warranty revenue earned.)
(To record the warranty expense.)

Answer 1

Answer:
Account Titles and Explanation	Debit (in $ )	Credit (in $ )
Unearned Sales Warranty ( $ 93 x 238 ) / 3 Years )	$ 7,378
Warranty Revenue (or) Sales Warranty		$ 7,378
(To record the warranty revenue earned.)
Warranty Expense	$ 6,200
Parts Inventory		$ 2,190
Accrued Payroll		$ 4,010
(To record the warranty expense.)