Question

Brief Exercise 13-14 Coronado Corporation sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2020, Coronado sold 20,000 warranty contracts at $105 each. The corporation spent $189,000 servicing warranties during 2020, and it estimates that an additional $945,000 will be spent in the future to service the warranties.
a. Prepare Leppard’s journal entries for the sale of contracts. Assume the service costs are inventory costs.

b. Prepare Leppard’s journal entries for the cost of servicing the warranties. Assume the service costs are inventory costs.

c. Prepare Leppard’s journal entries for the recognition of warranty revenue. Assume the service costs are inventory costs.

Answer 1

Answer:

(a)Sale contracts

Dr Cash $2,100,000

Cr Unearned warranty revenue $2,100,000

b)Cost of servicing warranty

Dr Warranty expense $189,0000

Cr Inventory $189,000

(c)Recognized warranty revenue

Unearned warranty revenue $525,000

Explanation:

(a)Sale contracts

Dr Cash ($20,000 x105) $2,100,000

Cr Unearned warranty revenue $2,100,000

b)Cost of servicing warranty

Dr Warranty expense $189,0000

Cr Inventory $189,000

(c)Recognized warranty revenue

Unearned warranty revenue $525,000

($2,100,000 ×1/4)