On January 1, Mason sold 5,000 stereo systems for $3,000 each (cost $1,800). The stereo systems...

On January 1, Mason sold 5,000 stereo systems for $3,000 each (cost $1,800). The stereo systems included an assurance-type warranty for the first year, and are estimated to cost $350 each. Mason also sold 2,000 optional extended coverage plans under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. Determine each of the following as of December 31:

A. Sales Revenue

B. Unearned Revenue

C. Warranty liability

D. Warranty expense

Expert Solution

A.

Service Revenue = 5,000 X $3,000 = $15,000,000

B.

Unearned Revenue = 2,000 X ($3,000 X $350 / ($1,800 + $350) = $980,000

C.

Warranty liability = 5,000 X $350 = $1,750,000

D.

Warranty expense = 5,000 X $350 = $1,750,000

ekkarill92 answered 2 years ago

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