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Computer Shack Corp. sells notebook computers that come with a 120-day manufacturer's warranty. In addition, Computer Shack sells separate extended warranties covering three years of
Computer Shack Corp. sells notebook computers that come with a 120-day manufacturer's warranty. In addition, Computer Shack sells separate extended warranties covering three years of repairs after the manufacturers' warranty expires. On April 2, 2022, Computer Shack sold a notebook with a three-year extended warranty contract. The extended warranty coverage started on August 1st, after the 120-day manufacturer's warranty on the notebook expired. The customer paid $1,999 with their credit card for this special offer and took the computer home with them on the purchase date. The customer was not obliged to purchase the extended warranty with the notebook, but chose to do so because they thought the package deal provided good value. Therefore, two performance obligations have been identified. The stand-alone selling price of the computer is $1,800 (cost to Computer Shack Corp. was $1,260 ). The stand-alone value of the three-year extended warranty is $360 if purchased and paid for at the time of the transaction. Assume costs of providing the warranty are incurred evenly throughout the three-year coverage period. Computer Shack Ltd. has a December 31 year end and prepares financial statements annually. Required: (a) How much of the $1,999 revenue will be recorded in each year (2022 through to 2025)? Show all calculations and label all amounts. (Round to the nearest dollar.) (b) Prepare all the journal entries to record the above transaction for 2022 and 2023. Computer Shack Corp. sells notebook computers that come with a 120-day manufacturer's warranty. In addition, Computer Shack sells separate extended warranties covering three years of repairs after the manufacturers' warranty expires. On April 2, 2022, Computer Shack sold a notebook with a three-year extended warranty contract. The extended warranty coverage started on August 1st, after the 120-day manufacturer's warranty on the notebook expired. The customer paid $1,999 with their credit card for this special offer and took the computer home with them on the purchase date. The customer was not obliged to purchase the extended warranty with the notebook, but chose to do so because they thought the package deal provided good value. Therefore, two performance obligations have been identified. The stand-alone selling price of the computer is $1,800 (cost to Computer Shack Corp. was $1,260 ). The stand-alone value of the three-year extended warranty is $360 if purchased and paid for at the time of the transaction. Assume costs of providing the warranty are incurred evenly throughout the three-year coverage period. Computer Shack Ltd. has a December 31 year end and prepares financial statements annually. Required: (a) How much of the $1,999 revenue will be recorded in each year (2022 through to 2025)? Show all calculations and label all amounts. (Round to the nearest dollar.) (b) Prepare all the journal entries to record the above transaction for 2022 and 2023
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