Question

Novak Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2017, the corporation sells for cash 415 computers at a unit price of $2,580. On the basis of past experience, the 2-year warranty costs are estimated to be $145 for parts and $195 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer. Record any necessary journal entries in 2017. (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 the amount is entered. Do not indent manually.) What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified? In 2018, the actual warranty costs to Novak Corporation were $19,270 for parts and $41,760 for labor. Record any necessary journal entry in 2018. (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 the amount is entered. Do not indent manually.)

Answer 1

a	Journal Entry
SN	Account Title	Debit-$	Credit-$
1	Cash-(415*$2580)	$1,070,700
	Sales		$1,070,700
	being entry for sale of 415 computers at a unit price of $2580
2	Warranty Expense	$141,100
	Estimated warranty under warranty		$141,100
	(415*(145+195))
	being entry for recording estimated warranty cost for $145 for parts and $195 for labor per unit
b		Novak Corporation
		Balance Sheet Partial
		Dec 31 2017
1	Current Liabilities
	Estimated Liabilities under warranties	$70,550
	(141100/2)
2	Long Term Liabilities
	Estimated Liabilities under warranties	$70,550
c	Journal Entry
SN	Account Title	Debit-$	Credit-$
1	Estimated Liabilities under warranties	61030
	Parts inventory		19270
	Accrues Payroll		41760
	Being entry for recording actual warranty cost of $19270 for parts and $41760 for labor