Question
Seattle Co. introduced at the end of 2020 a new computer for which they had tremendous Christmas sales. Seattle offers an assurance-type warranty on the
Seattle Co. introduced at the end of 2020 a new computer for which they had tremendous Christmas sales. Seattle offers an assurance-type warranty on the computer that covers all repair costs, including parts and labor, for 1 year after the date of purchase. In November and December of 2020, Seattle sold $7,000,000 of these computers. Seattle estimates the total costs of the assurance-type warranties will be 5.8% of sales. Along with the computers, Seattle also sold 7,000 service-type warranties at a price of $17 per contract. The service-type warranty contract covers all parts and labor for 3 years after the base warranty expires. The company estimates that the service-type warranty will be used 55% int he first year, 34% in the second, and the remainder in the third year of the contract. The firm did not make any actual repairs in the year of the sale of the computers (since use generally did not begin until December 25th!) covered under the assurance-type warranty. Repairs in 2021 under the assurance-type warranty, parts and labor, totaled $361,000. During the 2022 (the first year of the service-type warranty), the company incurred $21,000 in actual warranty claims including parts and labor that were covered only under the service-type warranty contract.
12. What is the actual amount Seattle would report for warranty expense - assurance for 2020?
- What is the amount Seattle would report for warranty revenue - service-type for 2022?
- What is the amount Seattle would report for warranty expense - service-type for 2022?
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