Brooks Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts

Question:

Brooks Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2020, the corporation sells for cash 400 computers at a unit price of $2,500. On the basis of past experience, the 2-year warranty costs are estimated to be $155 for parts and $185 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is not sold separately from the computer.

Instructions

a. Record any necessary journal entries in 2020.

b. What liability relative to these transactions would appear on the December 31, 2020, balance sheet and how would it be classified?

c. In 2021, the actual warranty costs to Brooks Corporation were $21,400 for parts and $39,900 for labor. Record any necessary journal entries in 2021.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial... Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...

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