Question

Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,300 and $800, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a credit to Unearned Warranty Revenue, $800.

Could you please explain why we are able to use the $800 standalone price with journal entries? I don't understand how to balance the cash receieved and the revenues/unearned revenues.

Answer 1

this the warranty expenseS case stereo is on basis of expected against sale of expenses. expected expenses in future is for certanity collected against this expenses, and under assurance gathered Theretore, $ 800 is is incurred. while no COst warran ty CC will cre dit the unearned Therefore, they $ 800" warranty revenue of