Texans Corp. uses the assurance-type (a.k.a. expense) approach to account for warranties. They sell a used car for $ 30,000 on October 25, 2020, with a one-year warranty covering parts and labour. Warranty expense is estimated at 2% of the selling price, and the appropriate adjusting entry is recorded at December 31, 2020. On March 12, 2021, the car is returned for warranty repairs. This cost Texans the sum of $ 200 in parts and $ 120 in labour. Instructions Provide appropriate adjusting entries on December 31, 2020. Briefly explain the assurance type approach to account for warranties. Provide the entries required on March 12, 2021.
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Texans Corp. uses the assurance-type (a.k.a. expense) approach to account for warranties. They sell a used car for $ 30,000 on October 25, 2020, with a one-year warranty covering parts and labour. Warranty expense is estimated at 2% of the selling price, and the appropriate adjusting entry is recorded at December 31, 2020. On March 12, 2021, the car is returned for warranty repairs. This cost Texans the sum of $ 200 in parts and $ 120 in labour.
Instructions
- Provide appropriate
adjusting entries on December 31, 2020. - Briefly explain the assurance type approach to account for warranties.
- Provide the entries required on March 12, 2021.
- With proper title and classification, present the amount of the warranty liability that would be shown on Texans’ balance sheet on December 31, 2021
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- Cullumber Equipment Company sells computers for $1,760 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 930 computers.Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2020.)In 2021, Cullumber incurred actual warranty costs relative to 2020 computer sales of $11,200 for parts and $16,800 for labor. Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 2020 Sales RevenueCash, Accrued PayrollInventoryWarranty ExpenseWarranty LiabilityAccounts Receivable…Carla Vista Resellers Ltd. (CVRL) sells gently used and refurbished appliances. The company provides a three-month warranty that is included in the cost of the appliance. Claims under the warranties vary from replacing defective parts to providing customers with new appliances if repairs cannot be made. During 2024, the estimated cost related to the three-month warranties was $36,480, of which $24,000 had been incurred before year end ($18,240 on replacement appliances and $5,760 for parts). For an additional charge of $144, CVRL also offers extended warranty coverage for three years on its refurbished appliances. This amount is expected to cover the costs associated with the extended warranties. During 2024, CVRL sold 480 three-year warranty plans. The costs incurred during the year for repairs and replacements under these plans amounted to $14,400. Based on experience, the company estimates that its total warranty costs over the three-year coverage period will be $43,200, which it…Oriole Equipment Company sells computers for $1,220 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 950 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2020.)In 2021, Oriole incurred actual warranty costs relative to 2020 computer sales of $10,000 for parts and $15,000 for labor. Part 1 Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 2020 (To record sale of computers) 2020 (To record…
- Brooks 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 400 computers at a unit price of $2,500. On the basis of past experience, the 2-year warranty costs are estimated to be $155 for parts and $185 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is not sold separately from the computer. (a) Record any necessary journal entries in 2020. (b) What liability relative to these transactions would appear on the December 31, 2020, balance sheet and how would it be classified? (c) In 2021, the actual warranty costs to Brooks Corporation were $21,400 for parts and $39,900 for labor. Record any necessary journal entries in 2021.Brooks 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 400 computers at a unit price of $2,500. On the basis of past experience, the 2-year warranty costs are estimated to be $155 for parts and $185 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is not sold separately from the computer. Instructions a. Record any necessary journal entries in 2020. b. What liability relative to these transactions would appear on the December 31, 2020, balance sheet and how would it be classified? c. In 2021, the actual warranty costs to Brooks Corporation were $21,400 for parts and $39,900 for labor. Record any necessary journal entries in 2021.Blossom Equipment Company sells computers for $1,540 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 930 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2020.) In 2021, Blossom incurred actual warranty costs relative to 2020 computer sales of $12,000 for parts and $18,000 for labor. (a) Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 2020 (To record sale of computers) 2020 (To record liability against warranty costs) 2021
- Blossom Equipment Company sells computers for $1,540 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 930 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. (Assume sales all occur at December 31, 2020.) In 2021, Blossom incurred actual warranty costs relative to 2020 computer sales of $12,000 for parts and $18,000 for labor. (a) Your answer has been saved. See score details after the due date. Under the expense warranty approach, give the entries to reflect the above transactions (accrual method) for 2020 and 2021. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Date Account Titles and Explanation Debit Credit 2020 Accounts Receivable 1432200 Sales Revenue 1432200 (To record sale of computers) 2020 Warranty Expense 93000 Warranty…During 2020, Beautiful Company introduced a fully automatic washing machine with dryer. The sales price per unit that comes with warranty is P40,000. The company offers a three-year warranty against defects and provides service other than the agreed-upon specifications. In addition, the customers are given the option to purchase the warranty separately. If the customer opted not to buy the warranty, the washing machine with dryer is sold for P37,500. The following are the sales data (see image below).Beautiful estimates that of the total pesos spent for repairs in the warranty contracts, 20% is incurred evenly during the first warranty year, 30% evenly in the second warranty year and 50% evenly during the third warranty year. Cost of servicing the units during 2020 and 2021 were P150,000 and P300,000 respectively.How much is the Unearned Revenue from Warranty Contracts at December 31, 2021?On January 1, 2021, Enzo S.r.l. sold and delivered a car to a customer for $80,000 cash. The car included a basic standard one-year (assurance) warranty for major parts and a five-year extended warranty (starts January 1, 2022) for all parts and labor. Two performance obligations are identified: car with standard warranty; and extended warranty. Notes: The car could have been sold separately for $75,000 and the extended warranty for $9,000. The estimated cost for the standard warranty is $1,500 and $1,500 of cash was spent in 2021 for the standard warranty. The estimated cost of servicing the extended warranty is $4,000 and costs are expected to be incurred about evenly over the five-year contract. $800 of cash was spent in 2022 relating to the extended warranty. Required: Show all CALCULATIONS. Clearly LABEL your answers. a) What is the total impact on INCOME of Enzo in 2021 as a result of this scenario? b) What is the impact on the LIABILITIES section of the statement of financial…
- In 2020, Eastern Appliance Manufacturing introduced a fully automatic washing machine with dryer. The sales price per unit, which comes with warranty, is P40,000. The company offers a three-year warranty against defects and provides service other than the agreed-upon specifications. In addition, the customers are given the option to purchase the warranty separately. If the customer opted not to buy the warranty, the washing machine with dryer is sold for P37,500. The following sales data are compiled for 2020 and 2021. • Washing machine with dryer sold: 2020- 800; 2021- 1,000 • Warranty contracts sold: 2020- 700; 2021- 850 Eastern Appliance Manufacturing estimates that of the total pesos spent for repairs in the warranty contracts, 20% is incurred evenly during the first warranty year, 30% evenly in the second warranty year, and 50% evenly during the third warranty year. Cost of servicing the units during 2020 and 2021 were P100,000 and P510,000, respectively. How much is the unearned…Sanaz Corporation sells computers under a 3-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 700 computers at a unit price of $2,000. On the basis of past experience, the3-year warranty costs are estimated to be $130 for parts and $170 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 2020.b. What liability relative to these transactions would appear on the December 31, 2020, balance sheet and how would it be classified?c. In 2021, the actual warranty costs to Sanaz Corporation were $30,500 for parts and $45,100 for labor. Record any necessary journal entries in 2021Cullumber Ltd. sells computers, computer accessories, and software. On its computer sales, the company provides a one-month warranty that is included in the cost of the computer. Claims under the warranties vary from replacing defective items to providing customers with refunds if they choose. During 2024, the estimated costs related to the one-month warranties was $52,000, of whic $46,800 had been incurred before year end ($39,000 for replacement items and $7,800 in refunds). For an additional charge of $130, Computers Galore also offers extended warranty coverage for two years on its computers. This amount is expected to cover the costs associated with the extended warranties. During 2024, Computers Galore sold 1,040 two-ye warranties. The costs incurred during the year for replacements under these warranties amounted to $40,300. Based on experienc the company estimates that its total warranty costs over the two-year coverage period will be $78,000, which it expects will occur evenly…
