On December 31, 2017, Dieker Company sells equipment to Tabor Inc. for $125,000.
ID: 2586975 • Letter: O
Question
On December 31, 2017, Dieker Company sells equipment to Tabor Inc. for $125,000. Dieker includes a 1-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2017. Dieker estimates the prices to be $122,000 for the equipment and $3,000 for the cost of the warranty.
(a) Prepare the journal entry to record this transaction on December 31, 2017.
(b) Repeat the requirements for (a), assuming that in addition to the assurance warranty, Dieker sold an extended warranty (service type warranty) for an additional 2 years (2019–2020) for $2,000.
Explanation / Answer
In the books for Dieker Company
Date : Dec 31,2017
Journal Entries :
(a) 1-year assurance warranty service
Cash/Bank A/c .....Dr 125000
Warranty Expense A/c .... Dr 3000
To Revenue/Sale of equipment 125000
To provision for Warranties/ Accrued warranty liability 3000
( Being revenue recognised for the transaction value and warranty expense along with laibility booked as per the principle of conservatism )
(b) Record transaction in addition to the assurance warranty,
Cash/Bank A/c .....Dr 127000
Warranty Expense A/c .... Dr 5000
To Revenue/Sale of equipment 127000
To provision for Warranties/ Accrued warranty liability 5000
( Being revenue recognised for the total consideration received and total warranty expense along with laibility booked as per the principle of conservatism )
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