Question

In: Accounting

4) An extended warranty for 3 years is sold for $1,155.00 on January 1, 2009. $200...

4) An extended warranty for 3 years is sold for $1,155.00 on January 1, 2009.
$200 is spent by the company to honor the warranty on March 7, 2009.
Revenue is recognized for unused portion of the warranty on December 31, 2009.
No money is spent in 2010 on warranties. Revenue is recognized for the unused
portion of the warranty on December 31, 2010.
(check figure: 12/31/2009 entry to unearned extended warranty = $185.00 debit)
Create the general journal entries to record the four transactions.

Solutions

Expert Solution

The revenue is $1,155 for 3 years. So for 1 year the revenue is $385. The journal entries are:

As cash is received, this above entry is recorded.

Normally, as expense is incurred to honor warranty claims, expense account is debited. But according to yellow highlighted part, the below entry can also be passed to adjust the expenses against the unearned revenue.

Now, in normal cases, full revenue for 1 year is recorded at year end as follows:

But if entry is passed as 2a, then the following entry is made at year end:

In both the cases, the year end entry next year is:

ekkarill92 answered 1 year ago
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