Computers Galore Ltd. salls computers, computer acceses and software. On its com

Question

Computers Galore Ltd. salls computers, computer acceses and software. On its computer saes, the company provides a ona-month warranty that is incluced in the cost of the computer. Claims under the warranties vary from raplacing defective parts to providing customers with new computers if repairs cannot be made. During 2016, the estimated cost related to the one-month warranties was $43,100, of which $39,400 had been incurred before year end For an additional charge of $110, Computers Galore also offers extended warranty coverage for two years on its computers. This amount is expected to cover the costs associated with the extended warranties. During 2016, Computers Galore sold 770 two- year warranties. Th costs ncurred during the year or ePars and replacements under these warranties amounted to $32.200 Based on past exper ence the company estimates that its total warranty costs over the tro-year coverage period will be $65,800. Prepare journal entries to record the warranty transactions for 2016. (Enter debit entries first followed by credit entries. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Round answers to 0 decimal places, e.g. 14,674.) No. Acoount and Debit Credit 1. (To record cost ncurred related to 2 year extended warranties.) To record estimated cost related to 1 month warranties.) S. To record service revenue.) To record cost incurred related to 1 month warranties.) 3. To record sale of 2 year extended warranties.)

Explanation / Answer

NO. Account Debit credit 1 Warranty expense 43100 warranty liability 43100 [being estimated warrnaty liability recorded] 2 warranty liability 39400 cash 39400 [being warranty liability incurred] 3 cash 84700 unearned service revenue 84700 [being extended warrnaty sold 770*110] 4 warranty expense 32200 cash 32200 5 Unearned service revenue 41449 service revenue 41449 [revenue earned 84700*32200/65800]

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