Question

New Age Computers manufactures and sells pagers and radio paging systems which include a 180 day warranty on product defects. It also sells an extended warranty which provides an additional two years of protection. On May 10, it sold a paging system for $4,500 and an extended warranty for another $1,400. The journal entry to record this transaction would include __________.

Answer 1

Answer:

A credit to unearned warranty revenue of $1400

Explanation:

Every customer that purchases a paging system is entitled to a 180 day warranty on product defects. Hence since an addition two years of protection was purchase by the customer, the journal entry must show that this warranty is not the 180 days earned one, but an unearned warranty which has been duly paid for by the customer.