Question
Pacers Computer Company sells computers for $ 2,000 each, which includes a 3-year warranty that requires the company to perform periodic services and to replace
Pacers Computer Company sells computers for $ 2,000 each, which includes a 3-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, Pacers sold 500 computers on account. Based on past experience, the company has estimated the total 3-year warranty costs at $ 80 for parts and $ 100 for labour.Market value of similar three-year services costs $190 per unit. Warranty revenue is earned evenly over the 3 years.
In 2021, Pacers Computer Company incurred actual warranty costs relative to 2020 computer sales of $ 10,000 for parts and $ 12,000 for labour.
Instructions
Assume sales of all units occur at December 31, 2020:
a)Prepare the sales and warranty journal entries to reflect the above transactions for 2020 and 2021, using the assurance-type warranty approach. (6 marks)
b)Prepare the sales and warranty journal entries to reflect the above transactions for 2020 and 2021, using the service-type warranty approach. (6 marks)
c)Provide the balances of the current and non-current warranty related liabilities on Pacers statement of financial position under part a) and b) as at December 31, 2020 and 2021? Present your answers with proper title and classifications into current and non-current liabilities. (5 marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started