Provide journal entries required for 2016

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Question

On January1, 2016, XYZ Inc. delivers a machine to a buyer. The agreed upon price is $9,000. Included in this price is 24 months service contract, which stipulates that the system will be fixed or replaced if it does not perform to certain specifications and 20 hours of service to maintain the system over this period.

The stand-alone price for maintenance service is $2,000. The buyer also opted for the 24 month warranty, which XYZ sells separately for $1,000. The company also estimates that based on past experience, the warranty costs for defective machinery should be estimated at $450 per year.

During Year 1, 8 hours of service are performed, as expected, at a cost of $800 and warranty work resulted in expenditures of $300.

Provide journal entries required for 2016, assuming that XYZ uses the revenue deferral approach to account for its warranties.

Reference no: EM132380403

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