Answer: Please refer to Explanation
Explanation:
1.
August 1,2019
DR Accounts Receivable - Mendez Company $739,200
CR Sales $720,000
CR Unearned Warranty Revenue $19,200
(To record Sales on Account to Mendez Company)
Dec 31, 2019
DR Warranty expense $9,200.00
CR Cash $9,200.00
(To record Warranty Expense incurred)
Dec 31, 2019
DR Unearned warranty revenue $8,000.00
CR Warranty revenue $8,000.00
(To record Warranty Revenue Earned)
Dec 31, 2020
DR Warranty expense $7,000.00
CR Cash $7,000.00
(To record Warranty Expense Incurred)
Dec 31 2020
DR Unearned warranty revenue $11,200.00
CR Warranty revenue $11,200.00
(To record Warranty Revenue Earned)
Workings
Sales
=1,600 wiglows * $450
= $720,000
Unearned Warranty Revenue - this is the amount that Mendez paid for a one year service-type warranty.
= 1,600 * 12
= $19,200
Warranty Revenue for 2019.
The warranty was for a year but only 5 months have passed at year's end since August 1 so the 5 months will be apportioned to enable it to be recorded for 2019, the total Unearned Warranty Revenue received will be apportioned as such,
= 5/12 * 19,200
= $8,000.
So $8,000 will be considered as earned for the year 2019.
Warranty Revenue 2020.
The rest of the Warranty will be recorded and earned in 2020.
= 19,200 - 8,000 (amount for 2019)
= $11,200
b)
The Unearned Warranty Revenue remaining will be reported as a Current liability as the period of a Year has not expired and so it cannot be considered as earned.
Dec 31 2019
Partial Balance Sheet.
Current Liabilities
Unearned warranty revenue $11,200.00
