On September 1, 2016, Carolina Electronics Company has 1,160 Blu-ray players ready for sale. On October 1, 2016, 810 are sold, on account, at $135 each with a 1-year assurance-type warranty. Carolina estimates that the warranty cost on each Blu-ray player sold will probably average $8 per unit. During the final 3 months of 2016, Carolina incurred warranty costs of $3,300, and in 2017 warranty costs were $3,180.

Required:

1.	Prepare the journal entries for the preceding transactions.
2.	Show how the preceding items would be reported on the December 31, 2016, balance sheet.
3.	Prepare the journal entries for the preceding transactions using the modified cash basis method.
4.	Next Level Which method produces the better measure of income? Why?

Prepare the necessary journal entries to record:

	1. the sale of Blu-ray players on account on October 1, 2016
	2. the related warranty accrual on October 1, 2016
	3. the warranty costs paid during the last quarter of 2016
	4. the warranty costs paid during the 2017
	Additional Instructions

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PAGE 9

GENERAL JOURNAL

Score: 90/101

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1	?	?		?
2		?			?
3	?	?
4		?
5	?	?		?
6		?			?
7	?	?
8		?

Points:

17.82 / 20

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Under the expense warranty accrual method, a company recognizes the estimated warranty expense and a contingent liability for future performance in the period of sale. This method assumes that the company makes the warranty offer to increase sales and, therefore, matches the estimated warranty expense against these sales. When the company uses its resources to fulfill the warranty agreement, it decreases both the liability and the asset it used to satisfy the warranty.

Prepare the necessary journal entries to record the above transactions using the modified cash basis method.

How does grading work?

PAGE 9

GENERAL JOURNAL

Score: 36/76

	DATE	ACCOUNT TITLE	POST. REF.	DEBIT	CREDIT
1		?
2
3		?
4		?
5		?
6		?

Show how the items would be reported on the December 31, 2016, balance sheet under U.S. GAAP. Additional Instructions

Score: 6/10

Carolina Electronics Company

Partial Balance Sheet

December 31, 2016

1	Current Liabilities:
2	?

Points:

1.2 / 2

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