Apple sells an electrical law mower and offers a two-year warranty to its customers. Apple uses the
Question:
Apple sells an electrical law mower and offers a two-year warranty to its customers. Apple uses the service-type approach for the warranty. 810 units of the lawnmower were sold in 2018 at an average price of $600 per unit. The portion of sales revenues allocated to the warranty portion of the sale was $110 per unit. The company estimated that warranty costs would average $95 per lawnmower over two years. Actual costs incurred by Apple to honor warranty claims in 2018 totaled $19,200 ($16,000 for labor, $3,000 for parts, and the rest cash). Warranty revenues are recognized each year based on the proportion of costs incurred out of the total estimated costs.
a. Prepare journal entries to record all the transactions described above in 2018.
b. Assume Apple accounts for the warranty using the assurance-type approach. Prepare journal entries to record all the transactions described above in 2018.
Probability & Statistics for Engineers & Scientists
ISBN: 978-0130415295
7th Edition
Authors: Ronald E. Walpole, Raymond H. Myers, Sharon L. Myers, Keying