Question

How should Ringo Company correctly record the sales of 2,000 televisions on June 1, 2017, totaling $2,000,000, with a warranty guarantee, considering the cost of televisions at $1,200,000, a 3-year assurance warranty with an estimated cost of $100,000, and the sale of extended warranties for 600 televisions for 2 years beyond the 3-year period for $40,000? Additionally, on December 12, 2017, Ringo incurs labor costs of $5,000 and part costs of $12,000 related to the assurance warranties, and estimates that the future assurance warranty costs will total $50,000 at December 31, 2017. How should Ringo record these transactions in its financial statements?

Answer 1

To record the sales of 2,000 televisions with a warranty guarantee, Ringo Company should record the revenue, cost of televisions sold, warranty liability, revenue from extended warranties, and future warranty costs.

Step-by-step explanation:

To correctly record the sales of 2,000 televisions by Ringo Company on June 1, 2017, we need to consider the cost of the televisions, the warranty guarantee, and the sale of extended warranties. Here's how it should be recorded:

1. Record the revenue from the sales of 2,000 televisions for $2,000,000.
2. Record the cost of televisions sold, which is $1,200,000.
3. Record the warranty liability for the 3-year assurance warranty, estimated at $100,000. This is an expense that needs to be recorded.
4. Record the revenue from the sale of extended warranties for 600 televisions for $40,000.
5. On December 12, 2017, record the labor costs of $5,000 and part costs of $12,000 related to the assurance warranties.
6. At December 31, 2017, record the estimated future warranty costs of $50,000.