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During 2019 Canada Computer Company sold computers for $100,000 which includes a 2-year warranty. Warranties sold...

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Accounting

During 2019 Canada Computer Company sold computers for $100,000which includes a 2-year warranty. Warranties sold separately for$70,000 that requires the company to perform periodic services andto replace defective parts. In 2020, Canada Computer Companyincurred actual warranty costs relative to 2019 computer sales of$5,000 for parts and $12,000 forlabor.                                                                                            

Instructions

(a) Using the revenue warranty approach, prepare the entries toreflect the above transactions for 2019 and 2020. assuming Canadaco. earn any unearned warranties equally over warranty life.

(b) The transactions of part (a) create what balance undercurrent liabilities in the Dec 31, 2019 balance sheet?

Answer & Explanation Solved by verified expert
3.8 Ratings (358 Votes)

Journal Enteries under warranty Appraoch
Year Particulars Debit   Credit
31-03-2019 Debtors A/c                  DR 1,00,000.00
To Sales A/c CR 1,00,000.00
(Being computers have been sold)
Year Particulars Debit   Credit
31-03-2019 Warranty Expense a/c   DR      70,000.00
To warranty liability A/c CR      70,000.00
(Being warranty liability accrued for 2 years recognised)
Year Particulars Debit   Credit
31-03-2020 warranty liability A/c DR      17,000.00
To Inventory A/c CR        5,000.00
To wages a/c      12,000.00
(Being expensed)
Balance sheet extract
Particulars Amount
Current liabilities                                       35,000.00
Non current Liabilities                                       35,000.00

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