Answer:
accounts receivable 1,000,000 debit
sales revenues 1,000,000 credit
------------------------------
warrant expense 125,000 debit
warrant liability 125,000 credit
-----------------------------
warranty liability 70,000 debit
Inventory 70,000 credit
Explanation:
The sales will be recorded as usual
Then we will recognize based on the company's expectation a warrant liability for 125,000 and a warrant expense for the same value
When the customer claims the warrant we will decrease the liaibility and also inventory as we are replacing the good so it is inventory account which decreases.
The reason why we do this treatment is to avoid charging expenses for the 2017 sales i nthe subsequent period (2019 and 2019) which vilates the matching principles.
