Question

On December 31, 2019, Resilient Company sells production equipment to Ready Corp. for $160,000. Resilient includes a one-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2019. Resilient estimates the prices to be $156,000 for the equipment and $4,000 for the cost of the warranty.

Required:

a) Prepare the journal entry to record this transaction on December 31, 2019.

b) Repeat the requirements for (a) assuming that, in addition to the assurance warranty, Resilient sold an extended warranty (service type warranty) for an additional two year (2019 – 2020) for $1,600.

Answer 1

(a) On December 31, 2019:

          Cash or Bank A/c                              Dr $160,000

   Warranty Expense A/c               Dr $4,000

            Warranty Liability A/c                       Cr $4,000

            Equipment A/c                                  Cr $160,000

(Being amount received on sale of production equipment with 1 year assurance warranty service)

(b) On December 31,19

  Cash or Bank A/c                          Dr $161,600

Warranty Expense A/c                    Dr $4,000

                   Warranty Liability A/c                     Cr $4,000

                   Equipment A/c                                Cr $160,000

                   Unearned service revenue Cr $1,600