Alpha has been manufacturing various components for electronic devices for which it offers no warranties. During the last years, it developed a new device which it launched at the beginning of 2020 with a selling price of $1,000 per unit. The company also decides to offer assurance-type warranties on this model, which would cover all repair costs, for two years after the date of purchase. It estimates the service cost per unit to be $100.

Alpha sold 25,000 units of this device in 2020 and 35,000 units in 2021 and all sales were on credit.

Actual warranty costs incurred were $750,000 in 2020 and $3,400,000 in 2021.

Instruction-

a] prepare the journal entry required to record the sales made during 2020;

b] prepare the journal entries required to record the warranty expenses and actual costs incurred for 2020;

c] Show in proper format, the amount of the estimated liability for warranties to be reported on the balance sheet as at December 31, 2021(2^nd year). Further show how these liabilities are to be classified.

Answer rating: 100% (QA)

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