Reference no: EM132505083
Teal Mountain Inc. sells portable computer equipment with a two-year warranty contract that requires the corporation to replace defective parts and provide the necessary repair labour. During 2020, the corporation sells for cash 382 computers at a unit price of $2,650. Ignore any cost of goods sold. Based on experience, the two-year warranty costs are estimated to be $164 for parts and $169 for labour per unit. (For simplicity, assume that all sales occurred on December 31, 2020.) The warranty is not sold separately from the equipment, and no portion of the sales price is allocated to warranty sales. Teal Mountain follows ASPE.
Question 1: Record the 2020 journal entry, assuming the cash basis is used to account for the warranties. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Question 2: Record the 2020 journal entries, assuming the accrual basis assurance- write approach is used to account for the warranties. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Question 3: What liability relative to these transactions would appear on the December 31, 2020 balance sheet? How would it be classified if the accrual basis assurance-write approach is used?
Question 4: Assume that in 2021 the actual warranty costs incurred by Teal Mountain were $23,069 for parts and $43,438 for labour.
Question 5: Record the necessary entry in 2021, applying the cash basis. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Question 6: Record the necessary entries in 2021, applying the accrual basis assurance-write approach. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
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