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.

Answer 1

Answer:

Explanation:

A)

Dr Cash 3250000

Cr Revenue 325000 [500*6500]

Dr Warranty expense 20000

Cr Liabilities on warranties 20000

B)

Dr Cash 3250000

Cr Revenue 3189000

Cr Unearned warranty revenue 61000

Dr Warranty expense 20000

Cr Cash 20000

Dr Unearned warranty revenue 30500

Cr Warranty revenue 30500[20000/40000*61000]