Question

Early in 2020, Stellar Equipment Company sold 500 Rollomatics at $5,900 each. During 2020, Stellar spent $18,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis. Your answer is partially correct. Try again. Prepare 2020 entries for Stellar. Assume that Stellar estimates the total cost of servicing the warranties in the second year will be $37,000. (If no entry is required, select "No Entry for the account titles and enter for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Account Titles and Explanation Credit Date Debit At Sale Cash 2950000 Study Sales Revenue 2950000 E During 2020 Warranty Expense 18,000 Inventory 18,000 Dec 31, 2020 Warranty Expense 19000 Warranty Liability 19000

Answer 1

Part 1)

Date	Particulars	Dr. Amt	Cr. Amt.
At Sale	cash A/c                          Dr.	2950000
	To sales Revenue A/c		2950000
During 2020	Warranty Expense A/c Dr	18000
	To Cash A/c		18000
Dec 31, 2020	Warranty Expense A/c Dr	37000
	To Warranty Liability		37000

Part 2)

Date	Particulars	Dr. Amt	Cr. Amt.
At Sale	cash A/c                          Dr.	2950000
	To sales Revenue A/c		2894000
	To Unearned warranty revenue A/c		56000
During 2020	Warranty Expense A/c Dr	18000
	To Cash A/c		18000
Dec 31, 2020	Unearned warranty revenue A/c Dr	28000
	To Warranty Revenue		28000

Since revenue to be recognised on a straight line basis & warranty assurance is for 2 years the unearned warranty revenue of 56000 shall be recognised partly at the end of 1st year i.e. Dec 31 ,2020. So amount of 56000/2 = 28000 shall be recognised as warranty revenue on Dec 31, 2020 & balance of 28000 shall be recognised as revenue on Dec 31, 2021.