Chapter 13 Assignment Question 5 (of 8) value 10.00 points Carnes Electronics se

Question

Chapter 13 Assignment Question 5 (of 8) value 10.00 points Carnes Electronics sells consumer electronics that carry a 90-day manufacturer's warranty. At the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During the year, Carnes received $438,000 for these extended warranties (approximately evenly throughout the year). Required: 1-a. Does this situation represent a loss contingency? Yes No 1.b. How should it be accounted for? Revenue is deferred as a liablity and warranty expense is computed using the straight-line basis n 2016. nue is deferred as a liability and warranty expense is computed using the straight-line basisin 2016

Explanation / Answer

Solution:

2) Recording for the sale of extended warranty

Event

General Journal

Debit

Credit

1)

Cash

$438,000

Warranty Obligation (Liability)

$438,000

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Event

General Journal

Debit

Credit

1)

Cash

$438,000

Warranty Obligation (Liability)

$438,000

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