Blue Corp sells extended 5-year warranty for $60 per product. On Jan 1, 2020, Blue sold 100 extended warranties and incurred $1,000 related to servicing the warranties during 2020. Assume Brown uses a straight-line basis in the recognition of warranty revenue. Which one of the following is the correct journal entry to record sales of extended warranties? Debit Cash $1,000; Credit Sales revenue $1,000 Debit Cash $6,000; Credit Sales revenue $6,000 Debit Cash $6,000; Credit Deferred warranty revenue $6,000 Debit Cash $1,200; Credit Warranty revenue $1,200

Blue Corp sells extended 5-year warranty for $60 per product. On Jan 1, 2020, Blue sold 100 extended warranties and incurred $1,000 related to servicing the warranties during 2020. Assume Brown uses a straight-line basis in the recognition of warranty revenue. Which one of the following is the correct journal entry to record sales of extended warranties? Debit Cash $1,000; Credit Sales revenue $1,000 Debit Cash $6,000; Credit Sales revenue $6,000 Debit Cash $6,000; Credit Deferred warranty revenue $6,000 Debit Cash $1,200; Credit Warranty revenue $1,200

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concord Ltd. manufactures a line of amplifiers that carry a three-year warranty against defects. Based on experience, the estimated warranty costs related to dollar sales are as follows: first year after sale-2% of sales; second year after sale-4% of sales; and third year after sale-5% of sales. Sales and actual warranty expenditures for the first three years of business were: Sales Warranty Expenditures 2021 $750,000 $ 15,900 2022 1,010,000 46, 000 2023 1,017, 000 80,000 (a) Calculate the amount that Concord should report as warranty expense on its 2023 income statement and as a warranty liability on its December 31, 2023 SFP using the assurance - type warranty (expense - based approach). Assume that all sales are made evenly throughout each year and that warranty expenditures are also evenly spaced according to the rates above. Warranty expense Warranty liability
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