Dos Passos Company sells televisions at an average price of $961 and also offers
ID: 2498777 • Letter: D
Question
Dos Passos Company sells televisions at an average price of $961 and also offers to each customer a separate 3-year warranty contract for $207 that requires the company to perform periodic services and to replace defective parts. During 2014, the company sold 390 televisions and 360 warranty contracts for cash. It estimates the 3-year warranty costs as $20 for parts and $40 for labor and accounts for warranties separately. Assume sales occurred on December 31, 2014, and straight-
line recognition of warranty revenues occurs.
(b)
Dos Passos Company
Balance Sheet (Partial)
December 31, 2014
Dos Passos Company sells televisions at an average price of $961 and also offers to each customer a separate 3-year warranty contract for $207 that requires the company to perform periodic services and to replace defective parts. During 2014, the company sold 390 televisions and 360 warranty contracts for cash. It estimates the 3-year warranty costs as $20 for parts and $40 for labor and accounts for warranties separately. Assume sales occurred on December 31, 2014, and straight-
line recognition of warranty revenues occurs.
Explanation / Answer
a)
Account titles and explanation
Debit
Credit
Cash
$449,310
Sales ($961 * 390)
$374,790
Unearned warranty revenue ($207 * 360)
$74,520
b)
Dos Passos Company
Balance Sheet (Partial)
December 31, 2014
Current liabilities:
Unearned service revenue
($74,520 * 1/3)
$24,840
Non Current liabilities:
Unearned service revenue
($74,520*2/3)
$49,680
Account titles and explanation
Debit
Credit
Cash
$449,310
Sales ($961 * 390)
$374,790
Unearned warranty revenue ($207 * 360)
$74,520
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