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Chapter 13: Q6P (page 700)

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 replacedefective parts. During 2017, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3-year warrantycosts 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 beclassified?

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

(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 andhow would they be classified?

Short Answer

Expert verified

(a) Cash will be debited by $294,300 and unearned warranty revenue will be credited by $24,300, and sales revenue by $270,000.

(b)Unearned warranty revenue of $8,100 in current liabilities, and $16,200 in long-term liabilities

(c) Unearned warranty revenue will be debited and warranty revenue will be credited by $8,100, respectively.

Warranty expense will be debited by $6,000, inventory will be credited by $2,000 and salaries and wages payable will be credited by $4,000.

(d) Unearned warranty revenue of $8,100 in current liabilities, and $8,100 in long-term liabilities

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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