Question

Marin Inc. sells portable computer equipment with a two-year warranty contract that requires the corporation to replace defective parts and provide the necessary repair labour. During 2020, the corporation sells for cash 382 computers at a unit price of $2,380. Ignore any cost of goods sold. Based on experience, the two-year warranty costs are estimated to be $157 for parts and $190 for labour per unit. (For simplicity, assume that all sales occurred on December 31, 2020) The warranty is not sold separately from the equipment, and no portion of the sales price is allocated to warranty sales. Marin follows ASPE. ✓ Your answer is correct. Record the 2020 journal entry, assuming the cash basis is used to account for the warranties. (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 for the amounts.) Debit Credit Account Titles and Explanation Cash $909.160 S909 160 Sales Revenus

Answer 1

Answer:

A) Cash Basis used for recording entries

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2017	Bank A/c Dr. (2380*382)	909160
	To Sales A/c  (2380*382)		909160
	(Being entry for sale of portable computer)

There will be no entry for provision warranty cost will be recorded as warranty cost is to be recorded when it occur.

B)  Accrual Basis used for recording entries

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2017	Bank A/c Dr. (2380*382)	909160
	To Sales A/c  (2380*382)		909160
	(Being entry for sale of portable computer)
31.Dec 2017	Warranty Expenses A/c Dr.	132554
	To Provision For Warranty Expenses A/c		132554
	(being warranty expenses recorded)
31.Dec 2017	Profit & loss A/c Dr.	132554
	To Warranty Expenses A/c		132554
	(Being entry for transfer of warranty expenses to Profit and Loss A/c)

Warranty Expenses =(( $157+ $190)*382)

= $ 132554

c) There is no presentation of Warranty expenses in Balance sheet in case of Warranty expenses recorded in cash basis.

Warranty expenses will be shown as Current Liabilities in the balance sheet when Warranty expenses are recorded in accrued basis.

d) Journal Entries

Warranty expenses incurred = Labour + Parts

= $ 40145 + $ 22217

= $62362

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2018	Warranty Expenses A/c Dr.	62362
	To Bank A/c		62362
	( Being Warranty expenses Paid )

e) Journal Entries Warranty Expenses recorded on Accrual Basis

Date	Particulars	Debit ($)	Credit ($)
31.Dec 2018	Provision for Warranty Expenses A/c Dr.	62362
	To Bank A/c		62362
	( Being Warranty expenses Paid )