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
a. a credit to Service Revenue of $5,050.

b. a credit to Service Revenue of $1,200.

c. a credit to Sales of $3,850 and a credit to Service Revenue of $1,200

d. a credit to Unearned Service Revenue of $1,200

Answer 1

Answer:

D. credit to Unearned Warranty Revenue of $1,400

Explanation:

Unearned extended warranty revenue can be defined as the way in unearned revenues is reflected in accrued liabilities in the balance sheets which in turn lead to the revenue from separately priced as well as self-insured service contracts to be deferred at the point of sale.

Therefore the journal entry to record this transaction would include:

credit to Unearned Warranty Revenue of $1,400