Reference no: EM132908956

Question - ABC Co. is a public company listed on TSX. It sells a new model of computer for $2,500 each, which includes a 3-year warranty for parts and labour. During 2019, ABC Co. sold 600 computers on account. Based on its past experience, the company has estimated the average 3-year warranty costs per unit at $60 for parts and $90 for labour. Assume all sales occurred on December 31, 2019.

In 2020, ABC Co. incurred actual warranty costs related to 2019 sales of the new model $8,000 for parts and $11,000 for labour. Employees have not been paid for the warranty services rendered.

Required: do not round intermediate numbers, round the final values to the nearest dollar.

1. Assuming the 3-year warranty is an assurance type warranty,

a) Prepare all the journal entries for the above transactions for 2019 and 2020;

b) Solely based on the above transactions, what accounts and balances are reported under current liabilities at the end of 2019 and 2020?

2. Assuming the 3-year warranty is a service type warranty and $200 of the selling price is related to the warranty,

a) Prepare all the journal entries for above transactions for 2019 and 2020;

b) Solely based on the above transactions, what accounts and balances are reported under current liabilities at the end of 2019 and 2020?