Question

Early in 2020, Concord Equipment Company sold 500 Rollomatics at $6,500 each. During 2020, Concord spent $20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicable transactions are on a cash basis.

A) Prepare 2020 entries for Concord. Assume that Concord estimates the total cost of servicing the warranties in the second year will be $40,000

B) Prepare 2020 entries for Concord assuming that the warranties are not an integral part of the sale (a service-type warranty). Assume that of the sales total, $61,000 relates to sales of warranty contracts.Warranty costs incurred in 2020 were $20,000. Estimate revenues to be recognized on a straight-line basis.

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Answer 1

Credit Debit $3,250.000 Date Account Titles and Explanation Dec. 31, 2020 Cash (500 * $6,500) Sales Revenue (To record the sale of the Rollomatics) $3,250,000 $20,000 Dec 31, 2020 Warranty Expense Cash (To record warranty service) $20,000 $20.000 Dec. 31, 2020 Warranty Expense ($40,000 - $20,000) Warranty liability (To record remaining warranty liabilities) $20.000 b) Credit Debit $3,250.000 Date Account Titles and Explanation Dec. 31, 2020 Cash (500 * $6,500) Sales Revenue Unearned Warranty Revenue (To record the sale of the Rollomatics) $3.189.000 $61,000 $20,000 Dec. 31, 2020 Warranty Expense Cash (To record warranty service) $20,000 $30,500 Dec 31, 2020 Unearned Warranty Revenue (561,000 / 2 years) Warranty Revenue (To record warranty revenue) $30,500