Brooks Ltd. is a trading company that sells computers and home appliances. Generally, the company sells computers under a 2-year warranty contract that requires the company to replace defective parts and to provide the necessary repair labor. During 2022, Brooks 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. Assume that all sales occur on December 31, 2022. The company warranty is not sold separately from the computer.

During 2022, Brooks also sells televisions at an average price of $900 and also offers to each customer a separate 3-year warranty contract for $90 that requires the company to perform periodic services and to replace defective parts. During 2022, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3-year warranty costs as $20 for parts and $40 for labor, and accounts for warranty separately. Assume that sales occurred on December 31, 2022, and straight-line recognition of warranty revenue occurs.

In 2023, Brooks incurred actual costs as follows:

• Actual cost relative to 2022 television warranty sales $2,000 for parts and $4,000 for labor (assume that the labor costs are not yet paid).

• Actual cost relative to 2022 computer warrant $21,400 for parts and $39,900 for labor (assume that the labor costs are not yet paid).

  Instructions

a. Record any necessary journal entries in 2022 and 2023.

b. What liability relative to these transactions would appear on the December 31, 2022 statement of financial position (balance sheet) and how would it be classified?