Bugs Appliance Company’s accountant has been reviewing the firm’s past television sales. For the past years, Bugs has been offering a special service warranty on all television sold. With the purchase of a television, the customer has the right to purchase a 3-year service contract for an extra P1,000. Information concerning past television and warranty contract sales is given below: 2020 2019 Television sales in units 550 460 Sales price per unit P55,000.00 P48,000.00 Number of service contracts sold 350 300 Expenses relating to television warranties P38,620 P13,400 Bugs’ accountant has estimated from past records that the pattern of repairs has been 40% in the year of sale, 36% first year after sale and 24% on 2 nd year of sale. Sales of the contracts are made evenly during the year. a) What is the adjusted balance of the unearned service contracts as of December 31, 2020? b) How much profit on service contract would be recognized in year 2020?
Bugs Appliance Company’s accountant has been reviewing the firm’s past television sales. For the past years,
Bugs has been offering a special service warranty on all television sold. With the purchase of a television, the
customer has the right to purchase a 3-year service contract for an extra P1,000.
Information concerning past television and warranty contract sales is given below:
2020 2019
Television sales in units 550 460
Sales price per unit P55,000.00 P48,000.00
Number of service contracts sold 350 300
Expenses relating to television warranties P38,620 P13,400
Bugs’ accountant has estimated from past records that the pattern of repairs has been 40% in the year of sale,
36% first year after sale and 24% on 2 nd year of sale. Sales of the contracts are made evenly during the year.
a) What is the adjusted balance of the unearned service contracts as of December 31, 2020?
b) How much profit on service contract would be recognized in year 2020?
Step by step
Solved in 2 steps
