Question
On 30 April 20X2, Neuman Ltd. sells a product to a customer for $600,000. The product carries a one-year assurance warranty. Neuman management estimates that
On 30 April 20X2, Neuman Ltd. sells a product to a customer for $600,000. The product carries a one-year assurance warranty. Neuman management estimates that the probable cost of fulfilling the warranty will be $50,000. Between 1 May and 31 December 20X2, the actual warranty cost was $20,000. On 31 December 20X2, management decides that the probable additional warranty cost will be no more than $13,000. Between 1 January and 30 April 20X3, the additional cost was $11,000.
1. Prepare the entries concerning the sales warranty for 30 April 20X2 through 30 April 20X3.
2. Assume instead that the warranty now includes service and is sold separately with a stand-alone value of $75,000. The product has a stand-alone vale of $580,000 and total contract is $600,000. Prepare the relevant journal entries for 30 April 20X2 through 30 April 20X3
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