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Question - Lon-Lon Co. sells laptop to various customers. The company has been offering a special service warranty on laptop units it sold. With the purchase of the laptop unit, the customer has the right to purchase 3-year service contract for an additional amount of P1,000. Data concerning sales of computer and warranty contract follow:
2019
2020
Laptop sales (in units)
1,000
1,200
Sales price per unit
P12,000
P14,000
Number of service contracts sold
800
900
Expenses relating to computer warranties
P30,000
P50,000
The company has estimated based on the available past records that the pattern of repairs has been 44% in the year of sale; 38% in the year immediately following the year of sale; and 18% in the second year after sale.
Sales of the contracts are made evenly during the year.
Required -
1. How much service contract revenue would be recognized in the year 2020?
2. How much is the unearned service contract on December 31, 2020?
3. How much service contract revenue would be recognized in the year 2021?
4. How much is the unearned service contract on December 31, 2021?
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