Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,300 and $900, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty wil include a

Select one:

1. debit to Warranty Expense, $900.

2. debit to Warranty Liability, $350

3. credit to Warranty Liability, $900

4. credit to Unearned Warranty Revenue, $900

Question

Business

Phillip Barker

27 October, 08:40

Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,300 and $900, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty wil include a

Select one:

1. debit to Warranty Expense, $900.

2. debit to Warranty Liability, $350

3. credit to Warranty Liability, $900

4. credit to Unearned Warranty Revenue, $900

+4

Answers (1)

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Davenport · Answer 1

Given:

The total transaction price for the sale of the stereo system and the extended warranty is $3,000.

The standalone price of each is $2,300 and $900, respectively.

The estimated cost of the assurance-warranty is $350.

Here, in this case the warranty expenses against sale of stereo is on basis of expected expenses.

Expected expenses in future is for certainty and sum collected against this expenses. Therefore, $ 900 is gathered under assurance-warranty while no cost is incurred. Therefore, they will credit the unearned warranty revenue of $ 900

Option (4) is correct.