On January 2, 2020, Kingbird Company sells production equipment to Fargo Inc. for $55,000. Kingbird 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, 2020. During 2020, Kingbird incurs costs related to warranties of $890. At December 31, 2020, Kingbird estimates that $660 of warranty costs will be incurred in the second year of the warranty.

(a)

Prepare the journal entry to record this transaction on January 2, 2020, and on December 31, 2020 (assuming financial statements are prepared on December 31, 2020).

(b)

Repeat the requirements for (a), assuming that in addition to the assurance warranty, Kingbird sold an extended warranty (service-type warranty) for an additional 2 years (2022-2023) for $800.

Please provide a step-by-step explanation how to compute and journalize transactions