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

Question

Riverbed 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. 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? Riverbed Corporation Balance Sheet (Partial) December 31, 2017

Explanation / Answer

Note: Since the warranty is for 2 years, the warranty payable 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 (371 x $2750) 1020250 Sales revenue 1020250 (To record sale of copiers) Warranty expense [371 x ($168 + $208)] 139496 Warranty payable 139496 (To record warranty expense)

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