91Ó°ÊÓ

Dos Passos Company sells televisions at an average price of \(900 and also offers to each customer a separate 3-year warranty contract for \)90 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3-year warranty costs as \(20 for parts and \)40 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.

Instructions

(a) Record any necessary journal entries in 2017.

(b) What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified?

In 2018, Dos Passos Company incurred actual costs relative to 2017 television warranty sales of \(2,000 for parts and \)4,000 for labor.

(c) Record any necessary journal entries in 2018 relative to 2017 television warranties.

(d) What amounts relative to the 2017 television warranties would appear on the December 31, 2018, balance sheet and how would they be classified?

Step by step solution

01

(a) Journal entry

Date	Accounts & Explanations	Debit	Credit
Dec.31,2017	Cash (300 x $900)+(270 x $90)	$294,300
	Unearned Warranty Revenue		$24,300
	Sales revenue		$270,000
	To record sales revenue and unearned warranty revenue

02

(b) Partial balance sheet

Current Liabilities
Unearned Warranty Revenue ($24,300 / 3)	$8,100
Long-term Liabilities
Unearned Warranty Revenue ($24,300 x 2/3)	$16,200
Total	$24,300

03

(c) Journal entry

Date	Accounts & Explanations	Debit	Credit
2018	Unearned Warranty Revenue	$8,100
	Warranty revenue ($24,300 / 3)		$8,100
	To record warranty revenue
2018	Warranty Expense	$6,000
	Inventory		$2,000
	Salaries and Wages Payable		$4,000
	To record warranty expense

04

(d) Partial balance sheet

Current Liabilities
Unearned Warranty Revenue ($24,300 / 3)	$8,100
Long-term Liabilities
Unearned Warranty Revenue ($24,300 - $8,100 - $8,100)	$8,100
Total	$16,200

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