Problem 13-6 Novak Company sells televisions at an average price of $814 and als
ID: 2524131 • Letter: P
Question
Problem 13-6
Novak Company sells televisions at an average price of $814 and also offers to each customer a separate 3-year warranty contract for $81 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 327 televisions and 277 warranty contracts for cash. It estimates the 3-year warranty costs as $19 for parts and $29 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.
Account Titles and Explanation
Debit
Credit
Novak Company
Balance Sheet (Partial)
December 31, 2017
Account Titles and Explanation
Debit
Credit
(To record the warranty revenue earned.)
(To record the warranty expense.)
Novak Company
Balance Sheet (Partial)
December 31, 2018
Open Show Work
Problem 13-6
Novak Company sells televisions at an average price of $814 and also offers to each customer a separate 3-year warranty contract for $81 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 327 televisions and 277 warranty contracts for cash. It estimates the 3-year warranty costs as $19 for parts and $29 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.
Explanation / Answer
Unearned Warranty Revenue ($22437*2/3):- $14958
Being Expenses related to Warranty recorded
1. Journal Entries int the Books of Novak Company as on 31/12/2017 Accounts Tittle and Explanation Debit Credit Cash $288,615 Sales Revenue (327 * $814) $266,178 Unearned Warranties Revenue (277*$81) $22,437 (Being units and warranty sold) 2. Shown in Balancesheet as on 31/12/2017 Current Liabilities Unearned Warranty Revenue ($22437/3):- $7479 Long Term libilitiesUnearned Warranty Revenue ($22437*2/3):- $14958
3. Journal Entries int the Books of Novak Company as on 31/12/2018 Accounts Tittle and Explanation Debit Credit Unearned Warranty Revenue $7,479 Warranty Revenue $7,479 (Being Warranty Revenue recognized) Warranty Expense $5,660 Parts Inventory $2,040 Accrued Payroll $3,620Being Expenses related to Warranty recorded
4.. Shown in Balancesheet as on 31/12/2018 Current Liabilities Unearned Warranty Revenue :- $7479 Long Term libilities Unearned Warranty Revenue :- $7479