Marigold Corporation sells computers under a 2-year warranty contract that requi

Question

Marigold 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 2017, the corporation sells for cash 371 computers at a unit price of $2,750. On the basis of past experience, the 2-year warranty costs are estimated to be $168 for parts and $208 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer.

Account Titles and Explanation

Debit

Credit

Marigold Corporation
Balance Sheet (Partial)
December 31, 2017

Account Titles and Explanation

Debit

Credit

Marigold 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 2017, the corporation sells for cash 371 computers at a unit price of $2,750. On the basis of past experience, the 2-year warranty costs are estimated to be $168 for parts and $208 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer.

Explanation / Answer

SOLUTION

(A)

(B)

Marigold corporation

Partial balance sheet

(C)

S.No. Account titles and Explanation Debit ($) Credit ($) 1. Cash 1,020,250 Sales Revenue (371 * $2,750) 1,020,250 2. Warranty Expense (371 * ($168 + $208)) 139,496 Warranty Liability 139,496

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