On December 31, 2022, Delta Company sells equipment to Tchefunkte Inc. for $125,000. Delta includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2022. Delta estimates the prices to be $122,000 for the equipment and $3,000 for the cost of the warranty. In addition to the assurance warranty, Delta sold an extended warranty for an additional 2 years for $3,000. How much warranty revenue should Delta recognize in 2022?
On December 31, 2022, Delta Company sells equipment to Tchefunkte Inc. for $125,000. Delta includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2022. Delta estimates the prices to be $122,000 for the equipment and $3,000 for the cost of the warranty. In addition to the assurance warranty, Delta sold an extended warranty for an additional 2 years for $3,000. How much warranty revenue should Delta recognize in 2022?
Warranty expense is an accounting estimate of the cost a company expects to incur to fulfill its obligations under a warranty agreement. This expense is recognized in the same accounting period in which the related revenue is recognized.
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