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 $900, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty wil include a ____________ 1. debit to Warranty Expense, $900.
2. debit to Warranty Liability, $350
3. credit to Warranty Liability, $900
4. credit to Unearned Warranty Revenue, $900
The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a credit to Unearned Warranty Revenue, $900
Explanation:
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 $900, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a credit to Unearned Warranty Revenue, $900.
Unearned extended warranty revenue is given to be as an unearned revenues in accrued liabilities in the balance sheets.
Revenue which comes from separately priced, self-insured service contracts is reffered at the point of sale.
Unearned revenue is a money which is received from a customer for work that has not been performed still.
➤ Automobile engines would be most likely to have dependent demand
When creating a new car, customers are going to want an engine in their car. That is why it is a "department demand." It is a demand that an automobile must have an engine when you are creating / working in the automobile department. You can't build an automobile without an engine, and that is why it is a demand to have one.
The Direct cost are those which are directly attributable to the product or service under consideration. Indirect cost are those which cannot be directly assigned to product or service cost. All the direct cost is added to the work in process account and indirect cost are included in the manufacturing overhead account.
