Brooks Ltd. sells computers under a 2-year warranty contract that requires the company to replace defective parts and to provide the necessary repair labor. During 2019, Brooks sells for cash 400 computers at a unit price of £2,500. On the basis of past experience, the 2-year warranty costs are estimated to be £155 for parts and £185 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2019.) The warranty is not sold separately from the computer.
Instructions
a. Record any necessary journal entries in 2019.
b. What liability relative to these transactions would appear on the December 31, 2019, statement of financial position and how would it be classified?
c. In 2020, the actual warranty costs to Brooks were £21,400 for parts and £39,900 for labor. Record any necessary journal entries in 2020.