Question

Indigo Company sold 10,000 Super-Spreaders on during 2017, at a total price of $885,200, with a warranty guarantee that the product was free of any defects. The cost of the spreaders sold is $350,500. The assurance warranties extend for a 3-year period and are estimated to cost $65,100. During 2017, warranty related costs amounted to $15,600. Indigo also sold extended warranties (service-type warranties) related to 3,000 spreaders for 2 years beyond the 2-year period for $25,200. Given this information, determine the amounts to report for the following at December 31, 2017: sales revenue, cost of goods sold, warranty expense, unearned warranty revenue, warranty liability, and cash.

Answer 1

Indigo Company

Sales Revenue = $885,200

Cost of goods sold = $350,500

Warranty Expense = $65,100

Unearned warranty revenue = $25,200

Warranty liability = $49,500 ($65,100 - $15,600)

Cash = $544,300 ($885,200 + $25,200 - $350,500 - $15,600)

Step-by-step explanation:

a) Data and Calculations:

Income Statement for the year ended December 31, 2017 (Partial)

Sales Revenue $885,200

Cost of goods sold 350,500

Gross profit $534,700

Warranty Expense 65,100

Net income $469,600

Balance Sheet as of December 31, 2017 (Partial)

Assets:

Cash $544,300

Liabilities:

Retained earnings $469,600

Unearned warranty revenue 25,200

Warranty liability 49,500

Total liabilities $544,300