Sunland Company sells televisions at an average price of $832 and also offers to
ID: 2406428 • Letter: S
Question
Sunland Company sells televisions at an average price of $832 and also offers to each customer a separate 3-year warranty contract for $93 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 285 televisions and 215 warranty contracts for cash. It estimates the 3-year warranty costs as $20 for parts and $30 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.
Account Titles and Explanation
Debit
Credit
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Sunland Company
Balance Sheet (Partial)
December 31, 2017
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Account Titles and Explanation
Debit
Credit
(To record the warranty revenue earned.)
(To record the warranty expense.)
SHOW LIST OF ACCOUNTS
LINK TO TEXT
Sunland Company
Balance Sheet (Partial)
December 31, 2018
Sunland Company sells televisions at an average price of $832 and also offers to each customer a separate 3-year warranty contract for $93 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 285 televisions and 215 warranty contracts for cash. It estimates the 3-year warranty costs as $20 for parts and $30 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.
Explanation / Answer
Note: Since the warranty is for 3 years, the unearned warranty revenue pertaining to the next 12 months is shown as a current liability while the remaining is shown as a long-term liability.
Account Titles and Explanation Debit Credit Cash [(285 x $832) + (215 x $93)] 257115 Sales revenue (285 x $832) 237120 Unearned warranty revenue (215 x $93) 19995 (To record sale of televisions and warranty contracts)Related Questions
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