Buffalo Corporation sells computers under a 2-year warranty contract that requir
ID: 2533656 • Letter: B
Question
Buffalo 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 391 computers at a unit price of $2,260. On the basis of past experience, the 2-year warranty costs are estimated to be $167 for parts and $197 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer. Record any necessary journal entries in 2017. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified? Buffalo Corporation Balance Sheet (Partial) December 31, 2017 : $ : $ In 2018, the actual warranty costs to Buffalo Corporation were $22,390 for parts and $38,000 for labor. Record any necessary journal entry in 2018. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit
Explanation / Answer
Date Account Debit Credit Working 2017 Cash 883660 391*2260 Sales Revenue 883660 (being 391 computers sold at 2260 per comp) 2017 Warranty Expense 142324 (167+197)*391 Warranty Liability 142324 (estimated warrancy expense recorded in the year sale made following matchin concept) 2018 Warranty Liability 40390 (2390+38000) Cash 40390 (Actual Warranties recorded) Balance Sheet of 2017 Contingent Liabilities: Long Term Liability (Since more than a year) 142324
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