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:

1. Prepare the journal entry to record this transaction on December 31, 2019.
2. 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

Answer
Journal Entry
a)
Date	Account titles and explanation	Debit	Credit
01-12-2019	Cash	$   1,60,000
	Warranty Expense	$        4,000
	To, sales revenue		$   1,60,000
	To, Provision for Warranties		$        4,000
	(To Record amount received on sale of production equipment with 1-year assurance warranty service)
b)	Record transaction in addition to the assurance warranty
	Cash   (160,000+1600)	$   1,61,600
	Warranty Expense (4000+1600)	$        5,600
	To, sales revenue		$   1,61,600
	To, Provision for Warranties		$        5,600
	(To Record transaction in addition to the assurance warranty)