Answer:
1. $82,000
2. Accrual / Matching Principle
Explanation:
The two year warranty against defects is known as an <em>Assurance Type Warranty</em>.
With <em>Assurance Type Warranty</em>, there is no option on the customer to take the warranty or not. Therefore this is not a separate performance obligation.
Assurance Type Warranty are accounted for in terms of <em>IAS 37 Provisions</em>.
At December 31, 2018, the Warranty Expense is calculated as follows :
Sales 2017 : $ 400,000 × 6% = $ 24,000
Sales 2018 : $ 600,000 × 12% = $ 72,000
Total = $ 96,000
<em>Journal </em>
Warranty Expense $ 96,000 (debit)
Warranty Provision $ 96,000 (credit)
When Warranty Claim is Subsequently received in 2018 the entries will be as follows :
<em>Journal</em>
Warranty Provision $14,000 (debit)
Cash $14,000 (credit)
Thus Warranty Liability will be : $ 96,000 - $14,000 = $82,000
