Question

Riverbed Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2020, the corporation sells for cash 381 computers at a unit price of $2,340. On the basis of past experience, the 2-year warranty costs are estimated to be $142 for parts and $192 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is not sold separately from the computer.
Required:
a. Record any necessary journal entries in 2017.
b. What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified? In 2018, the actual warranty costs to Brooks Corporation were $21,400 for parts and $39,900 for labor.
c. Record any necessary journal entries in 2018.

Answer 1

Answer:

A.

Dr Cash $891,540

Dr Warranty Expense $127,254

Cr Sales Revenue $891,540

Cr Warranty Liability $127,254

B. Current Liabilities

Warranty Liability $63,627

Long-term Debt

Warranty Liability $63,627

C. Dr Warranty Liability 61,300

Cr Inventory 21,400

Cr Salaries and Wages Payable 39,900

Explanation:

A. Preparation of the journal to Record any necessary journal entries in 2017.

Dr Cash $891,540

[ (381 × $2,340) = $891,540]

Dr Warranty Expense $127,254

Cr Sales Revenue $891,540

Cr Warranty Liability $127,254

(381 *[$142+ $192])

B. Calculation for What liability relative to these transactions would appear on the December 31, 2017,

Riverbed Corporation

Balance Sheet (Partial)

December 31, 2017

Current Liabilities

Warranty Liability $63,627

($127,254/2)

Long-term Debt

Warranty Liability $63,627

C. Preparation of the journal entry Record any necessary journal entries in 2018

Dr Warranty Liability 61,300

($21,400+$39,900)

Cr Inventory 21,400

Cr Salaries and Wages Payable 39,900