Exercise 18-26 (Part Level Submission)

On January 2, 2017, Sage Company sells production equipment to Fargo Inc. for $54,000. Sage includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2017. During 2017, Sage incurs costs related to warranties of $860. At December 31, 2017, Sage estimates that $650 of warranty costs will be incurred in the second year of the warranty.

(a) Your answer is partially correct. Try again. Prepare the journal entry to record this transaction on January 2, 2017, and on December 31, 2017 (assuming financial statements are prepared on December 31, 2017). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 2, 2017 Cash 54000 Sales Revenue 54000 During 2017 Warranty Expense 860 X Accounts Receivable 860 Dec. 31, 2017 Warranty Expense 650 Warranty Liability 650 (b) Repeat the requirements for (a), assuming that in addition to the assurance warranty, Sage sold an extended warranty (service-type warranty) for an additional 2 years (2019-2020) for $780. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit Jan. 2, 2017 During 2017 Dec. 31, 2017