E13-11 (similar to) E Question h Dilli Computers sels computers and offers an as

Question

E13-11 (similar to) E Question h Dilli Computers sels computers and offers an assurance-type(Click the icon to view additional information.) warranty that covers all repair costs, including parts and labor, for one year after the date of purchase. Dillin also sells a service-type warranty contract that covers all parts and labor for three years after the base warranty expires. The company estimates that the service-type warranty will be used 44% second, and 26% in the third year of the contract. Requirement Prepare the journal entries required to record the effects offering the service type warranty contract in the year of in the first year, 30% in the and during the following year. (Record debits first, then c Exclude explanations from any journal entries.) First, prepare thju More Info Account More Info In the year in which the computers were sold, the company also sold 10,400 service-type warranties at a price of $203 per contract, and received cash. Dillin sold the contracts at the end of the year and did not recognize any warranty revenue in the year of the sale. The firm did not make any actual repairs in the year of the sale covered by the assurance-type warranty. During the following year, the company incurred S54,000 in actual warranty claims that are now only covered under the service-type warranty contract. The repair costs included $35,500 in parts and $18,500 in labor (unpaid)

Explanation / Answer

Journal Entry Account Desription , Title Debit Credit Cash (10400*$203) $2,111,200.00 Unearned Warranty Revenue $2,111,200.00 To Record Warranty Sales Revenue ( Initial Year) Warranty Expense-Parts $35,500.00 Warranty Expense- Labour $18,500.00 Cash 35500 Labour/Wages Payable 18500 To record annual service cost incurred ( Following Year) Unearn ed Warranty Revenue $122,727.00 Warranty Revenue $122,727.00 To record unearned Warranty Revenue (Following Year) Calculation for Unearned Warranty Revenue =Warranty Expense incurred/Estimated Total Cost of Servicing)*Salee of warranty contract =$54000/($2111200*44%)*2111200 $122,727.27 Note: As mentioned ion problem Warranty were sold at the end of the year hence. Estimate will be calculted from next year onward.

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