Stellar Corporation sells computers under a 2-year warranty contract that requires the corporation to replace defective parts and to provide the necessary repair labor. During 2020, the corporation sells for cash 395 computers at a unit price of $2,390. On the basis of past experience, the 2-year warranty costs are estimated to be $158 for parts and $208 for labor per unit. (For simplicity, assume that all sales occurred on December 31, 2017.) The warranty is not sold separately from the computer.
(a) Record any necessary journal entries in 2020.
(b) What liability relative to these transactions would appear on December 31, 2020, balance sheet and how would it be classified?
In 2021, the actual warranty costs to Stellar Corporation were $21,400 for parts and $39,900 for labor.
(c) Record any necessary journal entries in 2021.
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