Exercise $13-16($Static$)$ Extended warranties $[$LO$13-5,13-6]$

Assessment Tool iFrame

Carnes Electronics sells consumer electronics that carry a $90-$day manufacturer's warranty. At the time of purchase, customers are offered the opportunity to also buy a two$-$year extended warranty for an additional charge. During the year, Carnes received $\backslash$$$412,000$ for these extended warranties, and on average the warranties were $\backslash (20\backslash \%\backslash )$ expired by year end.

Required:

$1-$a$.$ Does this situation represent a loss contingency?

$1-$b$.$ How should it be accounted for?

$2.$ Prepare journal entries that summarize sales of the extended warranties and recognition of any revenue associated with those warranties.

Complete this question by entering your answers in the tabs below.

Does this situation represent a loss contingency?

Loss contingency Journal entry worksheet

Assessment Tool iFrame

Record the sale of extended warranty.

Note: Enter debits before credits.

$\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|$c$|\}$

$\backslash$hline S$.$No$/$Date & Account Title & Debit & Credit $\backslash \backslash$

$\backslash$hline $1$ & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$ Carnes Electronics sells consumer electronics that carry a $90-$day manufacturer's warranty. At the time of purchase, customers are offered the opportunity to also buy a two$-$year extended warranty for an additional charge. During the year, Carnes received $\backslash (\backslash$$ $412,000\backslash )$ for these extended warranties, and on average the warranties were $\backslash (20\backslash \%\backslash )$ expired by year end.

Required:

$1-$a$.$ Does this situation represent a loss contingency?

$1-$b$.$ How should it be accounted for?

$2.$ Prepare journal entries that summarize sales of the extended warranties and recognition of any revenue associated with those warranties.

Complete this question by entering your answers in the tabs below.

Req $1$A

Req $1$B

Req $2$

How should it be accounted for?

Revenue is recognized as a$($n$)$ and warranty revenue is computed using the Journal entry worksheet

$1$

$2$

Record the revenue earned on extended warranty.

Note: Enter debits before credits.

$\backslash$begin$\{$tabular$\}\{|$c$|$c$|$c$|$c$|\}$

$\backslash$hline Event & General Journal & Debit & Credit $\backslash \backslash$

$\backslash$hline $2$ & & & $\backslash \backslash$

$\backslash$hline & & Assessment Tool iFrame & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline & & & $\backslash \backslash$

$\backslash$hline

$\backslash$end$\{$tabular$\}$