Answer:
the 12/31/27 Warranty Liability is $2,500
Explanation:
An assurance type warranty gives a customer assurance that the Good or Service will function or work as intended.
There is no option on the customer to take the warranty or not. Therefore, an assurance type warranty is not a separate performance obligation for revenue recognition.
Assurance type warranties are accounted for in terms of IAS 37 : Provisions.
<u>Entries that Frankfort Company will have made Using the Expense Warranty approach will be :</u>
Date : 1/1/27
Debit : Warranty Expense $1,300
Credit : Warranty Provision $1,300
<em>Providing for amount it will cost the entity in 2027</em>
Date : 12/31/27
<u>1st increase the provision</u>
Debit : Warranty Expense $100
Credit : Warranty Provision $100
<u>then utilize the provision</u>
Debit : Warranty Provision $1,400
Credit : Cash $1,400
When warranty claim is subsequently received
Conclusion :
Warranty liability remaining = $3,900 - ($1,300 + $100)
= $2,500
