Reference no: EM132880584
Question - Pacers Computer Company sells computers for $ 2,000 each, which includes a 3-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, Pacers sold 500 computers on account. Based on past experience, the company has estimated the total 3-year warranty costs at $ 80 for parts and $ 100 for labour. Market value of similar three-year services costs $190 per unit. Warranty revenue is earned evenly over the 3 years.
In 2021, Pacers Computer Company incurred actual warranty costs relative to 2020 computer sales of $ 10,000 for parts and $ 12,000 for labour.
Required - Assume sales of all units occur at December 31, 2020:
a) Prepare the sales and warranty journal entries to reflect the above transactions for 2020 and 2021, using the assurance-type warranty approach.
b) Prepare the sales and warranty journal entries to reflect the above transactions for 2020 and 2021, using the service-type warranty approach.
c) Provide the balances of the current and non-current warranty related liabilities on Pacers statement of financial position under part a) and b) as at December 31, 2020 and 2021? Present your answers with proper title and classifications into current and non-current liabilities.
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