Celic Inc. manufactures and sells computers that include an assurance-type warranty for 90 days. Celic offers an optional extended coverage plan under which it will repair or replace any defective part for three years from the expiration of the assurance-type warranty. Because the optional extended coverage plan is sold separately, Celic determines that the three years of the extended coverage represent a separate performance obligation. The total transaction price for the sale of a computer and the extended warranty is $3,600 on October 1, 2017, and Celic determines the stand-alone selling price of each is $3,200 and $400, respectively. Further, Celic estimates, based on historical experience, 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 equipment is $1,440.

Prepare the journal entry (or entries) to record the sale of the computer, cost of goods sold, and liabilities related to the warranties.

(b)

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

B. Shanahan Construction Company has entered into a non-cancellable contract beginning January 1, 2017, to build a parking complex. It has been estimated that the complex will cost $600,000 and will take three years to construct. The complex will be billed to the purchasing company at $900,000. The following data pertain to the construction period.

2017

2018

2019

Costs to date

$270,000

$450,000

$610,000

Estimated costs to complete

330,000

150,000

-0-

Progress billings to date (non-refundable)

270,000

550,000

900,000

Cash collected to date

240,000

500,000

900,000

Instructions

(a)

Using the percentage-of-completion method, calculate the estimated gross profit that would be recognized during each year of the construction period.

(b)

Using the completed-contract method, calculate the estimated gross profit that would be recognized during each year of the construction period.