he second contract year. Receipts from service contracts for the 2 years ended December 31, 2021, are as follows: 2020, P500,000; 2021,
he second contract year. Receipts from service contracts for the 2 years ended December 31, 2021, are as follows: 2020, P500,000; 2021,
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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ABC Company sells appliance service contracts agreeing to repair appliance for 2-year period. ABC Company’s past experience is that, of the total amount for repairs on service contracts, 40% is incurred evenly during the 1st contract year and 60% evenly during the second contract year. Receipts from service contracts for the 2 years ended December 31, 2021, are as follows: 2020, P500,000; 2021, P600,000. Receipts from contracts are credited to unearned service contract revenue.
Assume that all contract sales are made evenly during the year.
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