Ryan Corporation sells portable computers under a 5-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2008 the corporation sells for cash 350 computers at a unit price of $3,500 .On the basis of past experience, the5-year warranty costs are estimated to be $320 for parts and $180 for labor per unit.(For simplicity, assume that all sales occurred on December31,2008.)The warrantyis not sold separatelyfrom the computer. Instructions a.Record any necessary journal entries in2008,applyingthecashbasismethod. b.Record any necessary journal entries in 2008,applying the expense warranty accrual method. c.What liability relative to these transactions would appear on the December31, 2009, balance sheet and how it beclassified if thecash basis method is applied? d.What liability relative to these transactions would appear ontheDecember31, 2011,balance sheet and how it be classified if the expense warranty accrual methodisapplied?
Ryan Corporation sells portable computers under a 5-year warranty contract that
requires the corporation to replace defective parts and to provide the necessary repair
labor. During 2008 the corporation sells for cash 350 computers at a unit price of
$3,500 .On the basis of past experience, the5-year warranty costs are estimated to be $320 for parts and $180 for labor per unit.(For simplicity, assume that all sales occurred on December31,2008.)The warrantyis not sold separatelyfrom the computer.
Instructions
a.Record any necessary
b.Record any necessary journal entries in 2008,applying the expense warranty
accrual method.
c.What liability relative to these transactions would appear on the December31,
2009, balance sheet and how it beclassified if thecash basis method is
applied?
d.What liability relative to these transactions would appear ontheDecember31,
2011,balance sheet and how it be classified if the expense warranty accrual
methodisapplied?
Cash basis and accrual basis are two methods of recognition of revenue and expenditure. Cash basis recognizes revenue and expenditure whenever the transaction is happened, whereas accrual basis recognizes anticipated expenditures also.
Step by step
Solved in 2 steps with 1 images
