Question

On January 2, 2017, Blossom Company sells production equipment to Fargo Inc. for $ 55,000. Blossom...

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

Homework Answers

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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