Pronghorn Corp. provides at no extra charge a two-year warranty with one of its products, which was first sold in 2020. In that year, Pronghorn sold products for $2.14 million and spent $68,900 servicing warranty claims. At year end, Pronghorn estimates that an additional $520,800 will be spent in the future to service warranty claims related to the 2020 sales. Prepare entries for the warranty that recognize the sale as a multiple deliverable with the warranty as a separate service that Pronghorn bundled with the selling price of the product. Ignore any cost of goods sold entry. Sales in 2020 occurred evenly throughout the year. Warranty agreements similar to this are available separately, are estimated to have a stand-alone value of $619,900, and are earned over the warranty period as follows: 2020-25%, 2021-50%, and 2022-25%. Also prepare the entries to record the $68,900 expenditure for servicing the warranty during 2020, and the adjusting entry required at year end, if any, under the revenue approach used for service-type warranties. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
Pronghorn Corp. provides at no extra charge a two-year warranty with one of its products, which was first sold in 2020. In that year, Pronghorn sold products for $2.14 million and spent $68,900 servicing warranty claims. At year end, Pronghorn estimates that an additional $520,800 will be spent in the future to service warranty claims related to the 2020 sales. Prepare entries for the warranty that recognize the sale as a multiple deliverable with the warranty as a separate service that Pronghorn bundled with the selling price of the product. Ignore any cost of goods sold entry. Sales in 2020 occurred evenly throughout the year. Warranty agreements similar to this are available separately, are estimated to have a stand-alone value of $619,900, and are earned over the warranty period as follows: 2020-25%, 2021-50%, and 2022-25%. Also prepare the entries to record the $68,900 expenditure for servicing the warranty during 2020, and the adjusting entry required at year end, if any, under the revenue approach used for service-type warranties. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Transcribed Image Text:Date
2020
2020
Dec. 31, 2020
Account Titles and Explanation
Cash
Sales Revenue
Unearned Revenue
(To record cash sale)
Warranty Expense
Materials, Cash, Payables
(To record warranty expense)
Unearned Revenue
Warranty Revenue
(To record year-end adjustment)
Debit
2140000
II
68900
Credit
68900
Transcribed Image Text:Pronghorn Corp. provides at no extra charge a two-year warranty with one of its products, which was first sold in 2020. In that year,
Pronghorn sold products for $2.14 million and spent $68,900 servicing warranty claims. At year end, Pronghorn estimates that an
additional $520,800 will be spent in the future to service warranty claims related to the 2020 sales.
Prepare entries for the warranty that recognize the sale as a multiple deliverable with the warranty as a separate service that
Pronghorn bundled with the selling price of the product. Ignore any cost of goods sold entry. Sales in 2020 occurred evenly throughout
the year. Warranty agreements similar to this are available separately, are estimated to have a stand-alone value of $619,900, and are
earned over the warranty period as follows: 2020-25%, 2021-50%, and 2022-25%. Also prepare the entries to record the $68,900
expenditure for servicing the warranty during 2020, and the adjusting entry required at year end, if any, under the revenue approach
used for service-type warranties. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no
entry is required, select "No Entry" for the account titles and enter o for the amounts.)
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