Brooks Corporation sells computers under a 2-year warranty contract that require

Question

Brooks Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2014, the corporation sells for cash 504 computers at a unit price of $3,100. On the basis of past experience, the 2-year warranty costs are estimated to be $166 for parts and $196 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2014.) The warranty is not sold separately from the computer.

Record any necessary journal entries in 2014, applying the cash-basis method. (If no entry is required, select titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is manually.) Account Titles and Explanation Debit Credit Cash 1562400 Sales Revenue 1562400 SHOW LIST OF ACCOUNTS LINK TO TEXT Record any necessary journal entries in 2014, applying the expense warranty accrual method. (If no entry is re the account titles and enter 0 for the amounts. Credit account titles are automatically indented when tl indent manually.) Account Titles and Explanation Debit Credit Cash 1562400 Sales Revenue (To record the sale.) Warranty Expense 1562400 1122200 Warranty Liability 1122200

Explanation / Answer

a. Journal entries in 2014, applying the cash-basis method: Date Accounts / Explanations Debit Credit Dec. 31, 2014 Cash $1,562,400 Sales Revenue $1,562,400 (Being 504 Computer sold @ $3100) b. Journal entries in 2014, applying the expense warranty accrual method Date Accounts / Explanations Debit Credit Dec. 31, 2014 Cash $1,562,400 Sales Revenue $1,562,400 (Being 504 Computer sold @ $3100) Dec. 31, 2014 Warranty Expense (504*(166+196)) $182,448 Accrued warranty liability $182,448 (Being Warranty expense accrued) c. Under cash basis method no warranty liability shall appear on the Dec. 31, 2014 Balance sheet d. Under accrual basis method warranty liability of $182,448 shall appear on the Dec. 31, 2014 Balance sheet. e. Journal entries in 2015, applying the cash-basis method: Date Accounts / Explanations Debit Credit Dec. 31, 2015 Warranty Expense (30,970+40460) $71,430 Cash $71,430 (Being warranty expense paid) f. Journal entries in 2015, applying the accrual method: Date Accounts / Explanations Debit Credit Dec. 31, 2015 Accrued warranty liability $71,430 Cash (30,970+40460) $71,430 (Being warranty expense paid)

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