Question

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 replace defective parts. During 2014, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3-year warranty costs as $20 for parts and $40 for labor, and accounts for warranties separately. Assuming sales occurred on December 31, 2014, and straight-line recognition of warranty revenues occurs.

(a) Record any necessary journal entries in 2014:
(b) What liability relative to these transactions would appear on the December 31, 2014, balance sheet and how would it be classified?
In 2015, Dos Passos Company incurred actual costs relative to 2014 television warranty sales of $2,000 for parts and $4,000 for labor.
(c) Record any necessary journal entries in 2015 relative to 2014 television warranties.
(d) What amounts relative to the 2014 television warranties would appear on the December 31, 2015, balance sheet and how would they classified?

Answer 1

A. Dr Cash 294,300

Cr Sales Revenue 270,000

Cr Unearned Warranty Revenue 24,300

B. Classified as Current Liabilities

Unearned Warranty Revenue 8,100

Classified as Long term Liabilities

Unearned Warranty Revenue 16,200

C. Dr Unearned Warranty Revenue 8,100

Cr Warranty Revenue8,100

Dr Warranty Expense 6,000

Cr Inventory parts 2,000

Cr Salaries & Wages Payable 4,000

D. Classified as Current Liabilities

Unearned Warranty Revenue 8,100

Classified as Long Term Liabilities

Unearned Warranty Revenue 8,100

Step-by-step explanation:

(a) Preparation for the necessary journal entries for the year 2014

Dr Cash 294,300

Cr Sales Revenue 270,000

(300*900)

Cr Unearned Warranty Revenue 24,300

(270*90)

(b) Calculation for the liability that would appear on the balance sheet for December 31, 2014, and how they would be classified.

We are going to Classified the liability as Current Liabilities and Long term Liabilities

Classified as Current Liabilities

Unearned Warranty Revenue 8,100

(24,300/3)

Classified as Long term Liabilities

Unearned Warranty Revenue 16,200

(24,300*2/3)

(c) Preparation of journal entry for the year 2015 relative to 2014 television warranties

Dr Unearned Warranty Revenue 8,100

(24,300/3)

Cr Warranty Revenue 8,100

Dr Warranty Expense 6,000

(2,000 +4,000)

Cr Inventory parts 2,000

Cr Salaries & Wages Payable 4,000

(d) Calculation for the amounts relative to the year 2014 television warranties that would appear on the December 31, 2015, balance sheet and how they would be classified.

We are going to Classified the liability as Current Liabilities and Long term Liabilities

Classified as Current Liabilities

Unearned Warranty Revenue 8,100

(24,300/3)

Classified as Long Term Liabilities

Unearned Warranty Revenue 8,100

(24,300/3)