Reference no: EM132986348

Question - Lightning Appliances sells dishwashers for $ 1,200 each, which includes a 2-year warranty that requires the company to perform periodic services and to replace defective parts. In 2020, Lightning sold 600 dishwashers on credit. The estimated stand-alone value of a similar two-year warranty is $180. Based on experience, the company has estimated the total 2-year warranty costs at $ 115 per unit.

In 2021, Lightning Company incurred actual warranty costs relative to 2020 dishwasher sales of $ 11,500.

Required - Assume sales all occur on December 31, 2020:

a) Using the assurance-type (expense-based) approach, prepare the entries to reflect the above transactions for 2020 and 2021.

b) Using the cash basis method, what are the Warranty Expense balances for 2020 and 2021?

Using the service-type (revenue-based) approach, prepare the entries to reflect the above transactions for 2020 and 2021. Warranty revenues are recognized based on the proportion of costs incurred out of the total estimated costs.