Question
Wildhorse Company sells televisions at an average price of $887 and also offers to each customer a separate 3-year warranty contract for $93 that requires
Wildhorse Company sells televisions at an average price of $887 and also offers to each customer a separate 3-year warranty contract for $93 that requires the company to perform periodic services and to replace defective parts. During 2020, the company sold 318 televisions and 238 warranty contracts for cash. It estimates the 3-year warranty costs as $22 for parts and $42 for labor, and accounts for warranties separately. Assume sales occurred December 31, 2020, and straight-line recognition of warranty revenues occurs. What liability relative to these transactions would appear on the December 31, 2020 balance sheet and how would it be classified?
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