Reference no: EM132563245

Question - James Equipment Company sells computers for 150,000 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2019, the company sold 70 computers. Based on past experience, the company has estimated the total 2-year warranty costs as P3000 for parts and P6000 for labor. (Assume sales all occur at December 31, 2019.)

In 2020, James incurred actual warranty costs relative to 2019 computer sales of 1,000,000 for parts and 1,800,000 for labor.

Instructions -

1. Under the accrual method, give the entries to reflect the above transactions for 2019 and 2020.

2. Under the cash method, give the entries to reflect the above transactions for 2019 and 2020.

3. Analyze and present the difference in incurrence of expense between the two methods. (i.e., Warranty expense and Warranty liability balances)

4. Which method is more appropriate? Explain.