Celic SA manufactures and sells computers, which include an assurance-type warranty for the first 90 days. Celic offers an optional extended coverage plan under which it will repair or replace any defective part for 3 years from the expiration of the assurance-type warranty. Because the optional extended coverage plan is sold separately, Celic determines that the 3 years of extended coverage represents a separate performance obligation. The total transaction price for the sale of a computer and an extended warranty is €3,600 on October 1, 2022. Celic determines the standalone selling price of the computer and the warranty are €3,200 and €400, respectively. Based on historical experience, Celic estimates that it will incur €200 in costs to repair defects that arise within the 90-day coverage period for the assurance-type warranty. The cost of the computer is €1,440. Assume that the €200 in costs to repair defects in the computer occurred on October 25, 2022.

Instructions

a. Prepare the journal entry or entries to record the October transactions related to sale of the computer.

b. Briefly describe the accounting for the service-type warranty after the 90-day assurance-type warranty period.