Question
warranties Alpha has been manufacturing various components for electronic devices for which it offers no warranties. During the last years, it developed a new device
warranties
Alpha has been manufacturing various components for electronic devices for which it offers no warranties. During the last years, it developed a new device which it launched at the beginning of 2020 with a selling price of $1,000 per unit. The company also decides to offer assurance-type warranties on this model, which would cover all repair costs, for two years after the date of purchase. It estimates the service cost per unit to be $100.
Alpha sold 25,000 units of this device in 2020 and 35,000 units in 2021 and all sales were on credit.
Actual warranty costs incurred were $750,000 in 2020 and $3,400,000 in 2021.
Instruction-
a] prepare the journal entry required to record the sales made during 2020;
b] prepare the journal entries required to record the warranty expenses and actual costs incurred for 2020;
c] Show in proper format, the amount of the estimated liability for warranties to be reported on the balance sheet as at December 31, 2021(2nd year). Further show how these liabilities are to be classified.
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