Question

On January 2, 2017, Blossom Company sells production equipment to Fargo Inc. for $ 55,000. Blossom includes a 2-year assurance warranty service with the sale of all its equipment. The customer receives and pays for the equipment on January 2, 2017. During 2017, Blossom incurs costs related to warranties of $ 850 (Use Parts Expense account). At December 31, 2017, Blossom estimates that $ 630 of warranty costs will be incurred in the second year of the warranty.

Prepare the journal entry to record this transaction on January 2, 2017, and on December 31, 2017 (assuming financial statements are prepared on December 31, 2017). (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit

Repeat the requirements for (a), assuming that in addition to the assurance warranty, Blossom sold an extended warranty (service-type warranty) for an additional 2 years (2019–2020) for $ 800. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No entry" for the account titles and enter 0 for the amounts.)

Date

Account Titles and Explanation

Debit

Credit

Answer 1

CASE 1

Date	Account Titles and Explanation	Debit	Credit
Jan. 2	Cash	55000
	Sales revenue		55000
During 2017	Warranty expense	850
	Part expense account		850
Dec. 31	Warranty expense	630
	Warranty Liability		630

CASE 2

Date	Account Titles and Explanation	Debit	Credit
Jan. 2	Cash	55800
	Sales revenue		55000
	Unearned service Revenue (warranty)		800
During 2017	Warranty expense	850
	Part expense account		850
Dec. 31	Warranty expense	630
	Warranty Liability		630

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