Part 1:

Okanagan Refrigeration manufactures and markets commercial refrigeration systems for food trucks and specialized transport trucks. It was disclosed in notes to the company’s financial statements that estimated warranty costs are accrued at the time products are sold. Assume that in 2020 warranty costs are estimated at $315,000 and that the related warranty work was actually paid for during 2021. Required Explain how financial statements are affected due to warranties in 2020 and 2021.

Part 2:

Assume that Fabfit Enterprises collected $1,950,000 during 2020 for fitness magazines that will be delivered in future years. During 2021, Fabfit delivered magazines based on these subscriptions amounting to $1,835,000. Required Explain how financial statements are affected in 2020 and 2021 by these subscriptions.

Part 3:

Assume that Small Town Coffee Shops started to sell gift cards and collected $23,500 during December 2020 for gift cards sold during the holiday season for use during 2021. The accountant was not sure what account to credit for these gift cards and which financial statement they would appear on.

Required

Explain which account should be credited and on which financial statement this account will appear.

Explain how financial statements are affected in 2020 and 2021 by these gift cards, specifically when the revenue will be recognized.