Question

Exercise 13-21 Bridgeport Equipment Limited sold 490 Rollomatics on account during 2017 for $5,700 each. During 2017, Bridgeport spent $34,800 servicing the two-year warranties that are included in each sale of the Rollomatic. All servicing transactions were paid in cash Prepare the 2017 entries for Bridgeport using the assurance-type (expense-based) approach for warranties. Assume that Bridgeport estimates that the total cost of servicing the warranties will be $117,000 for two years. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (To record sales) (To record warranty expense paid in cash) (To accrue outstanding warranty)

Answer 1

Req 1.
Journal entries:
S.no.	Accounts title and explanations				Debit $	Credit $
a.	Accounts receivable				2793000
	Sales revenue (490 units @ 5700)					2793000
	(for recording sales)
b.	Warranty expenses				34800
	Cash					34800
	(for warranty expenses paid)
c.	Warranty expenses				82200
	Estimated warranty liabilities (117000-34800)					82200
	(for accruing outstanding warranty)
Req 2.
Journal entries:
S.no.	Accounts title and explanations				Debit $	Credit $
a.	Accounts receivable (490 units @5700)				2793000
	Sales revenue					2637900
	Unearned service revenue					155100
	(to r record the sales)
b.	Warranty expenses				34800
	Cash					34800
	(for warranty expenses paid)
c.	Unearned service revenue				46132
	Service revenue (155100/117000 *34800)					46132
	(To remeasure unearned service revenue)
Req 3.
			Case-a		Case-b
			using		Warranties not integral
			expense approach
Sales revenue			2793000		2637900
Service revenue			0		46132
Less: Warranty expense			-117000		-34800
			(34800+82200)
Net income			2676000		2649232