Umbrella Corporation sold 700 tractors on January 1, 2006. Umbrella paid $80,000 and $60,000, respectively, during...

Umbrella Corporation sold 700 tractors on January 1, 2006. Umbrella paid $80,000 and $60,000, respectively, during 2006 and 2007 servicing the 3-year warranties that accompany the tractors. The warranties are not an integral part of the sale. Of the total revenues of $4.5 million derived from tractor sales, $450,000 were attributable to the sale of warranties.
Umbrella estimated the total cost of servicing the 3-year warranties to be $320,000 as of December 31, 2006 and revised that estimate to $140,000 on December 31, 2007. Umbrella records warranty revenue prorata over the term of servicing the warranties.
What is the balance of unearned warranty revenue as of December 31, 2007?

Solutions

Expert Solution

Unearned revenue is money received from a customer for work that has not yet been performed. Unearned warranty revenue is a liability for Umbrella Corporation.

$450,000 were attributable to the sale of warranties.

Umbrella paid $80,000 during 2006 for warranty.

Therefore, $450,000-$80,000 = $370,000 is unearned warranty revenue. But, company estimate the total cost of servicing the 3-year warranties to be $320,000 as of December 31, 2006.

Therefore, company will credit $50,000 in statement of profit or loss, it means company will convert $50,000 into revenue from a liability.

During 2007 company paid $60,000 for warranty.

Therefore, $320,000 - $60,000 = $260,000 is unearned warranty revenue. But, company revised the estimate to $140,000 on December 31,2007.

Therefore, $260,000 - $140,000 = $120,000 will be credited to statement of profit or loss.

Hence, balance of unearned warranty revenue as of December 31, 2007 will be $140,000.

ekkarill92 answered 2 years ago

Next > < Previous

Related Solutions

A business sells $ 60,000 and $ 80,000 worth of goods in January and February respectively....

A business sells $ 60,000 and $ 80,000 worth of goods in January and February respectively. The controller indicates that 50% of the customers pay their bills on a cash basis, 40% in 30 days and 10% in 60 days. During the month of January and February, the company purchased 30,000 and $50,000 worth of goods from suppliers respectively. The company’s policy is to pay 50% on a cash basis and the other 50% during the following 30 days. The...

On January 1, 1998, Umbrella Corporation sold inventory costing $30,000 to Burns Industries. In return, Umbrella...

On January 1, 1998, Umbrella Corporation sold inventory costing $30,000 to Burns Industries. In return, Umbrella Corporation received a 4-year, 9% note with a face value of $100,000. Blended payments will be made yearly on December 31, and will include principal and interest. The market rate of interest is 5%. Umbrella Corporation has a December 31 year-end while Burns Industries year-end is August 31. Instructions: a) Calculate the annual payments Umbrella Corporation will receive each year from Burns Industries. Use...

On January 1, 2018, Fulton Corporation purchased land as a factory site for $80,000. Fulton paid...

On January 1, 2018, Fulton Corporation purchased land as a factory site for $80,000. Fulton paid $30,000 and signed a noninterest-bearing note requiring the company to pay the remaining $50,000 on January 1, 2021. An interest rate of 5% properly reflects the time value of money for this type of loan agreement. An old building on the property was demolished, and construction began on a new building that was completed on December 31, 2018. Costs incurred during this period are...

Parent Corporation paid $400,000 cash for 90% of Subsidiary Corporation's common stock on January 1, 2006,...

Parent Corporation paid $400,000 cash for 90% of Subsidiary Corporation's common stock on January 1, 2006, when Subsidiary had $300,000 capital stock and $100,000 retained earnings. Th book value of Subsidiary's assets and liabilities were equal to fair values. During 2006, Subsidiary reported net income of $20,000 and declared $10,000 in dividends on December 31. Balance sheets for Parent and Subsidiary at December 31, 2006, are as follows (in thousands): Parent Subsidiary Assets Cash $ 42 $ 20 Receivable -...

The capital accounts of Robert Jewell and Donald Kane have balances of $60,000 and $80,000 respectively....

The capital accounts of Robert Jewell and Donald Kane have balances of $60,000 and $80,000 respectively. James Abbey and George Bowman are to be admitted to the partnership. Abbey purchases one-third of Jewell's interest for $25,000 and one-fifth of Kane's interest for $20,000. Bowman contributes $40,000 cash to the partnership, for which he is to receive an ownership equity of $40,000. INSTRUCTIONS: (a) Present the entries in general journal form to record the admission to the partnership of (1) Abbey...

The Mesino Corporation issues $80,000, 5%, 5-year bonds on January 1, for $83,200. Interest is paid...

The Mesino Corporation issues $80,000, 5%, 5-year bonds on January 1, for $83,200. Interest is paid semiannually on January 1 and July 1. If Mesino uses the straight-line method of amortization of bond premium, the amount of bond interest expense to be recognized on July 1 is a. $2,000 b. $4,000 c. $1,680 d. $3,360

Sharp and Townson had capital balances of $80,000 and $150,000, respectively on January 1, 2014 of...

Sharp and Townson had capital balances of $80,000 and $150,000, respectively on January 1, 2014 of the current year. On May 8, Sharp invested an additional $20,000 in the partnership (already entered). During the year, Sharp and Townson withdrew $35,000 and $55,000, respectively (Already entered). At the end of the year, there was $500,000 balance in the 'Revenue' account and $380,000 in the 'Expenses' account. Sharp and Townson have agreed to split on a 2:1 basis, respectively. (xx.xx%) 1. Journalize...

Pineapple Corp sold 80,000 units providing a profit of $60,000. The unit margin of safety for...

Pineapple Corp sold 80,000 units providing a profit of $60,000. The unit margin of safety for the period was 40,000 units. If the company increases its advertising expenses next period by $20,000, its sales will increase to 100,000 units. What would be the new net income next period?

The Clarke Co. acquired a machine on May 1, 2006, at a cost of $60,000. The...

The Clarke Co. acquired a machine on May 1, 2006, at a cost of $60,000. The machine is expected to have a ten-year life and a residual value of $5,000. The estimated lifetime output from the machine is expected to be 55,000 units. Under which of the following depreciation methods would the depreciation charge be the greatest in 2006, if 9,100 units were produced in that year?

On January 1, 2017, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s...

On January 1, 2017, Alison, Inc., paid $60,000 for a 40 percent interest in Holister Corporation’s common stock. This investee had assets with a book value of $200,000 and liabilities of $75,000. A patent held by Holister having a $5,000 book value was actually worth $20,000. This patent had a six-year remaining life. Any further excess cost associated with this acquisition was attributed to goodwill. During 2017, Holister earned income of $30,000 and declared and paid dividends of $10,000. In...

Subjects