Question

On January 2, 2020, Riverbed Company sells production equipment to Fargo Inc. for $46,000. Riverbed includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2020. During 2020, Riverbed incurs costs related to warranties of $900. At December 31, 2020, Riverbed estimates that $690 of warranty costs will be incurred in the second year of the warranty.

Required:
a. Prepare the journal entry to record this transaction on January 2, 2020, and on December 31, 2020.
b. Repeat the requirements for (a), assuming that in addition to the assurance warranty.

Answer 1

A. Jan 2,2020

Dr Cash $46,000

Cr Sales Revenue $46,000

During 2020

Dr Warranty expenses $900

Cr Cash $900

Dec 31,2020

Dr Warranty expense $690

Cr Accrued warranty liability $690

B. Jan 2,2020

Dr Cash $46,760

Cr Sales revenue $46,000

Cr Unearned warranty expense $760

During 2020

Dr Warranty expenses $900

Cr Cash $900

Dec 31,2020

Dr Warranty expense $690

Cr Accrued warranty liability $690

Step-by-step explanation:

Preparation of the journal entry to record this transaction on January 2, 2020, and on December 31, 2020

Jan 2,2020

Dr Cash $46,000

Cr Sales Revenue $46,000

(Being to record sale of equipment)

During 2020

Dr Warranty expenses $900

Cr Cash $900

(Being to record warranty expense)

Dec 31,2020

Dr Warranty expense $690

Cr Accrued warranty liability $690

(Being to record warranty liability)

B. Preparation of the Journal entry to Repeat the requirements for (a)

Jan 2,2020

Dr Cash $46,760

($46,000+$760)

Cr Sales revenue $46,000

Cr Unearned warranty expense $760

(Being to record sale of equipment and extended warranty)

During 2020

Dr Warranty expenses $900

Cr Cash $900

(Being to record warranty expense)

Dec 31,2020

Dr Warranty expense $690

Cr Accrued warranty liability $690

(Being to record warranty liability)