On December 31, 2020, Grando Company sells production equipment to Fargo Inc. for $50,000. Grando includes a one-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on December 31, 2020. Grando estimates the prices to be $48,800 for the equipment and $1,200 for the cost of warranty.

Instructions

a. Are the sale of the equipment and the warranty separate performance obligations within the contract? Explain.

b. Prepare the journal entry to record this transaction on December 31, 2020. Ignore any related cost of goods sold entry.

c. Repeat the requirements for part (a), assuming that, in addition to the assurance warranty, Grando sold an extended warranty (service-type warranty) for an additional two years (2022–2023) for $800.