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Prepare the journal entries that record sale of machinery

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Reference no: EM133099822

Question - Avocado Company sells a machine for RM 7,400 with a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. In 2019, with COVID 19 pandemic, the company sells only 600 machines (warranty expense is incurred half in 2019 and half in 2020). The company estimates that the warranty cost is RM 390 per machine (RM 170 parts and RM 220 labor).

REQUIRED -

(a) Prepare the journal entries that record the following:

(1) Sale of machinery in 2019.

(2) Warranty costs incurred in 2019.

(3) Warranty expense charged against 2019 revenues.

(4) Warranty costs incurred in 2020.

By using the following methods:

a) The expense warranty accrual method

b) The cash-basis method.

(b) What amount, if any, is disclosed in the balance sheet as a liability for future warranty costs as of December 31, 2019, under each method?

(c) Which method best reflects the income in 2019 and 2020 of Avocado company? Why?

Reference no: EM133099822

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