Question

KK Company sold 10,000 Super-Spreaders on December 31, 2019, at a total price of $1,000,000, with a warranty guarantee that the product was free of any defects. The cost of the spreaders sold is $550,000. The assurance warranties extend for a 2-year period and are estimated to cost $40,000. KK also sold extended warranties (service-type warranties) related to 2,000 spreaders for 2 years beyond the 2-year period for $12,000. Given this information, determine the amounts to report for the following at December 31, 2019: sales revenue, warranty expense, unearned warranty revenue, warranty liability, and cash

Answer 1

The amounts to report at December 31, 2019 are:

• Sales revenue $1,000,000

• Warranty expense $40,000

• Unearned warranty revenue $12,000

• Warranty liability $40,000

• Cash $1,012,000

Amount to reported on income and balance sheet:

Amount reported in Income

Sales revenue                   $1,000,000

Warranty expenses           $40,000

Amount reported on the balance sheet:

Unearned service revenue      $12,000

Cash                                         $1,012,000

($1,000,000 + $12,000)  

Warranty liability                       $40,000

Inconclusion the amounts to report at December 31, 2019 are: Sales revenue $1,000,000, Warranty expense $40,000, Unearned warranty revenue $12,000, Warranty liability $40,000 and Cash $1,012,000.

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