In 2020, Carpenter Inc. sells a product that carries a separate, three-year warranty for parts and labor on service for $50 per product. Sales of products totaled $50,000 where customers also purchased the $50 warranty, result- ing in total warranty sales of S5,000. On the basis of experience, it is estimated that for the three-year warranty, costs are 2% of sales for parts and 3% for labor and overhead. Actual warranty service costs were $1,000 in 2020 and $800 in 2021. The company uses straight-line recognition of warranty revenue. For simplification, assume that sales occurred at the first of the year. Required Record the journal entries required for the following. 1. Sale of the products and warranties in 2020. 2. Incurred warranty costs in 2020 and 2021. 3. Recognition of warranty revenue for 2020 and 2021. What liability would be reported on the balance sheet at the end of 2020 and 2021? a. b.

In 2020, Carpenter Inc. sells a product that carries a separate, three-year warranty for parts and labor on service for $50 per product. Sales of products totaled $50,000 where customers also purchased the $50 warranty, result- ing in total warranty sales of S5,000. On the basis of experience, it is estimated that for the three-year warranty, costs are 2% of sales for parts and 3% for labor and overhead. Actual warranty service costs were $1,000 in 2020 and $800 in 2021. The company uses straight-line recognition of warranty revenue. For simplification, assume that sales occurred at the first of the year. Required Record the journal entries required for the following. 1. Sale of the products and warranties in 2020. 2. Incurred warranty costs in 2020 and 2021. 3. Recognition of warranty revenue for 2020 and 2021. What liability would be reported on the balance sheet at the end of 2020 and 2021? a. b.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter22: Accounting For Changes And Errors.

Section: Chapter Questions

Problem 10E

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On January 1, 2019, Mopps Corp. agrees to provide Conklin Company 3 years of cleaning and janitorial services. The contract sets the price at 12,000 per year, which is the normal standalone price that Mopps charges. On December 31, 2020, Mopps and Conklin agree to modify the contract. Mopps reduces the fee for the third year to 10,000, and Conklin agrees to a 4-year extension that will extend services through December 31, 2024, at a price of 15,000 per year. At the time that the contract is modified, Mopps is charging other customers 13,500 for the cleaning and janitorial service. Required: Should Mopps and Conklin treat the modification as a separate contract? If so how should Mopps account for the contract modification on December 31, 2020? Support your opinion by discussing the application to this case of the factors that need to be considered for determining the accounting for contract modifications.
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