Reference no: EM132735625
Question: Beartooth Appliances sells televisions for $1,900 each, which includes a 2-year assurance-type warranty that requires the company to perform periodic services and to replace defective parts. During 2020, Beartooth sold 600 televisions for cash. Based on experience, the company has estimated the total 2-year warranty costs to be $40. (Assume sales all occur on December 31, 2020.) In 2021, Beartooth Company incurred actual warranty costs relative to 2020 television sales of $13,000.
Beartooth also sells a five-year extended warranty for $300. Warranty expenditures are assumed to be zero in the first two years (since the assurance-type warranty covers these repairs) and then evenly over the final three years.
Of the 600 televisions sold in 2020, half the customers purchased the extended warranty. During 2023, Beartooth incurred $22,000 in warranty costs related to the 2020 television sales and the extended warranty. Beartooth Corporation follows IFRS.
Instructions
- Prepare the entries for the sale of the televisions, including both warranties.
- Prepare the entry for 2021 warranty costs. Use a date of May 30.
- Prepare the 2023 entry for the warranty costs (use a date of May 30) and the December 31, 2023, adjusting entry for the extended warranty.
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