Answer:
On September 11, 2016, Home Store sells a mower for $490 cash with a one-year warranty that covers parts
Recording of revenue:
Cash $490 (debit)
Revenue $490 (credit)
Recording of Warranty granted :
Assurance Warranty expense $49.00 (debit)
Warranty Provision $49.00 (credit)
$490 × 10% = $49.00
On July 24, 2017, the mower is brought in for repairs covered under the warranty requiring $34 in materials taken from the Repair Parts Inventory
When warranty is subsequently received:
Warranty Provision $ 34 (debit)
Repair Parts Inventory $ 34 (credit)
Step-by-step explanation:
On September 11, 2016, Home Store sells a mower for $490 cash with a one-year warranty that covers parts
Recording of revenue:
Cash $490 (debit)
Revenue $490 (credit)
We Recognise Revenue to depict transfer of control of mower
Recording of Warranty granted :
Assurance Warranty expense $49.00 (debit)
Warranty Provision $49.00 (credit)
$490 × 10% = $49.00
There is no option for customer to take the warranty or not, so this is a service warranty.The warranty is measured at the best estimate of expenditure required to settle the obligation that is at 10% of sales.
On July 24, 2017, the mower is brought in for repairs covered under the warranty requiring $34 in materials taken from the Repair Parts Inventory
When warranty is subsequently received:
Warranty Provision $ 34 (debit)
Repair Parts Inventory $ 34 (credit)
Utilise the Warranty Provision when the warranty claim is subsequently received