Problem 13-5 Bonita Corporation sells computers under a 2-year warranty contract
ID: 2531080 • Letter: P
Question
Problem 13-5
Bonita 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 375 computers at a unit price of $2,300. On the basis of past experience, the 2-year warranty costs are estimated to be $159 for parts and $189 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer.
Account Titles and Explanation
Debit
Credit
Bonita Corporation
Balance Sheet (Partial)
December 31, 2017
Account Titles and Explanation
Debit
Credit
Problem 13-5
Bonita 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 375 computers at a unit price of $2,300. On the basis of past experience, the 2-year warranty costs are estimated to be $159 for parts and $189 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer.
Explanation / Answer
Bonita Corporation
Date
Account Titles and Explanation
Debit
Credit
Cash
$862,500
Sales
$862,500
(To record sale of 375 computers at unit price of $2,300)
Warranty Expense
$130,500
Estimated liability under warranties
$130,500
(To record estimated warranty liability - 375 x ($159 +$189))
Partial Balance Sheet as on December 31, 2017
Current Liabilities:
Estimated Liability under Warranties
$65,250
Long-term Liabilities:
Estimated liability under warranties
$65,250
Note: of the company adopts cash basis, no liability would be disclosed as future costs based on warranties of past sales.
Account Titles and Explanation
Debit
Credit
Warranty Expense
$60,660
Parts (inventory)
$21,670
Accrued Wages
$38,990
Date
Account Titles and Explanation
Debit
Credit
Cash
$862,500
Sales
$862,500
(To record sale of 375 computers at unit price of $2,300)
Warranty Expense
$130,500
Estimated liability under warranties
$130,500
(To record estimated warranty liability - 375 x ($159 +$189))