Problem 13-5 (Part Level Submission)

Kingbird Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2017, the corporation sells for cash 368 computers at a unit price of $2,280. On the basis of past experience, the 2-year warranty costs are estimated to be $144 for parts and $184 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer.

a. Record any necessary journal entries in 2017

b. What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified?

c. In 2018, the actual warranty costs to Brooks Corporation were $21,400 for parts and $39,900 for labor. Record any necessary journal entries in 2018.