Thomas Equipment Co. (TEC) manufactures equipment with a new process that allows it to achieve a...
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Thomas Equipment Co. (TEC) manufactures equipment with a new process that allows it to achieve a high standard of quality; so in the past it did not offer a warranty for its products. However, it noticed that it was losing sales to its major competitor so the company decided to start to provide a two-year warranty for each unit sold of it new machine (the AAX model), in order to ensure that it remains competitive. TEC is a public company and accounts for its two-year warranty as assurance-type warranty. TEC introduced its new AAX machine on January 1, 2020 and you have determined that sales on account for the year totalled $2,000,000 (5,000 units at $400 each spread evenly over the year). The warranty is for two years, and the estimated warranty cost averages $50 per machine spread evenly over the two years. Actual costs of servicing warranties for the 2020 were $130,000. TEC still considers its overall estimate of $50 per machine for the two-year period to be reasonable. Question 11 (6 points) Assume that TEC accounts for its warranty as an assurance-type warranty and prepare the necessary journal entries to record all of the transactions described for 2020. Thomas Equipment Co. (TEC) manufactures equipment with a new process that allows it to achieve a high standard of quality; so in the past it did not offer a warranty for its products. However, it noticed that it was losing sales to its major competitor so the company decided to start to provide a two-year warranty for each unit sold of it new machine (the AAX model), in order to ensure that it remains competitive. TEC is a public company and accounts for its two-year warranty as assurance-type warranty. TEC introduced its new AAX machine on January 1, 2020 and you have determined that sales on account for the year totalled $2,000,000 (5,000 units at $400 each spread evenly over the year). The warranty is for two years, and the estimated warranty cost averages $50 per machine spread evenly over the two years. Actual costs of servicing warranties for the 2020 were $130,000. TEC still considers its overall estimate of $50 per machine for the two-year period to be reasonable. Question 11 (6 points) Assume that TEC accounts for its warranty as an assurance-type warranty and prepare the necessary journal entries to record all of the transactions described for 2020.
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To record the transactions for 2020 TEC would need to make the following journal entries 1To record ... View the full answer
Related Book For
Business Statistics For Contemporary Decision Making
ISBN: 978-1118749647
8th edition
Authors: Black Ken
Posted Date:
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