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17 November, 15:13

Teal Company sells televisions at an average price of $814 and also offers to each customer a separate 3-year warranty contract for $81 that requires the company to perform periodic services and to replace defective parts. During 2017, the company sold 327 televisions and 277 warranty contracts for cash. It estimates the 3-year warranty costs as $19 for parts and $29 for labor, and accounts for warranties separately. Assume sales occurred on December 31, 2017, and straight-line recognition of warranty revenues occurs.

Account Title Debit Credit

1. Cash (Correct) $304,533 (Correct)

2. Sales Rev. (Correct) $279,585 (Correct)

3. Unearned Sales Warranty (Correct) $24948 (correct)

What liability relative to these transactions would appear on the December 31, 2017, balance sheet and how would it be classified?

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Answers (1)
  1. 17 November, 17:19
    0
    A.

    Dr Cash 266,178

    Cr Sales Revenue 243,741

    Cr Unearned Warranty Revenue 22,437

    b) Current Liabilities:Unearned Warranty Revenue 90,579

    Long-term liabilities:Unearned Warranty Revenue 181,158

    Explanation:

    Teal Company

    A.

    Dr Cash (814*327) 266,178

    Cr Sales Revenue 243,741

    Cr Unearned Warranty Revenue (277*81) 22,437

    b) Current Liabilities:Unearned Warranty Revenue 90,579

    (327*277)

    Long-term liabilities:Unearned Warranty Revenue 181,158

    (90,579*2)
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