Question

Teal Company sells televisions at an average price of $814 and also offers to each customer a separate 3-year warranty contract for $81 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 327 televisions and 277 warranty contracts for cash. It estimates the 3-year warranty costs as $19 for parts and $29 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.
Account Title Debit Credit
1. Cash (Correct) $304,533 (Correct)
2. Sales Rev. (Correct) $279,585 (Correct)
3. Unearned Sales Warranty (Correct) $24948 (correct)
What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified?

Answer 1

Answer:

A.

Dr Cash 266,178

Cr Sales Revenue 243,741

Cr Unearned Warranty Revenue 22,437

b)Current Liabilities:Unearned Warranty Revenue 90,579

Long-term liabilities:Unearned Warranty Revenue 181,158

Explanation:

Teal Company

A.

Dr Cash (814*327) 266,178

Cr Sales Revenue 243,741

Cr Unearned Warranty Revenue (277*81) 22,437

b)Current Liabilities:Unearned Warranty Revenue 90,579

(327×277)

Long-term liabilities:Unearned Warranty Revenue 181,158

(90,579×2)