Bridgeport Machinery Co. manufactures equipment to a very high standard of quality; however, it must still provide a warranty for each unit sold, and there are instances where the machines do require repair after they have been put into use. Bridgeport started in business in 2023, and as the controller, you are trying to determine whether to use the assurance-type or service-type warranty approach to measure the warranty obligation. You would like to show the company president how this choice would affect the financial statements for 2023, and advise him of the better choice, keeping in mind that the service-type approach is consistent with IFRS, and that there are plans to take Bridgeport public in a few years. You have determined that sales on account for the year were 1,040 units, with a selling price of $2,700 each. Ignore any cost of goods sold. The warranty is for two years, and the estimated warranty cost averages $180 per machine. Actual costs of servicing warranties for the year were $112,320. You have done some research and determined that, if the service-type approach were to be used, the portion of revenue allocated to the warranty portion of the sale would be $340. Because the costs of servicing warranties are not incurred evenly, warranty revenues are recognized based on the proportion of costs incurred out of the total estimated costs. (a2) For the service-type approach, prepare the necessary journal entries to record all of the transactions described. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select "No Entry for the account titles and enter O for the amounts) Account Titles and Explanation (To record sales on account) (To record warranty expense) (To remeasure unearned revenue) Determine the unearned revenue and expense amounts for 2023. Unearned revenue $ Warranty expense $ Debit 10 00 00 Credit 00000
Bridgeport Machinery Co. manufactures equipment to a very high standard of quality; however, it must still provide a warranty for each unit sold, and there are instances where the machines do require repair after they have been put into use. Bridgeport started in business in 2023, and as the controller, you are trying to determine whether to use the assurance-type or service-type warranty approach to measure the warranty obligation. You would like to show the company president how this choice would affect the financial statements for 2023, and advise him of the better choice, keeping in mind that the service-type approach is consistent with IFRS, and that there are plans to take Bridgeport public in a few years. You have determined that sales on account for the year were 1,040 units, with a selling price of $2,700 each. Ignore any cost of goods sold. The warranty is for two years, and the estimated warranty cost averages $180 per machine. Actual costs of servicing warranties for the year were $112,320. You have done some research and determined that, if the service-type approach were to be used, the portion of revenue allocated to the warranty portion of the sale would be $340. Because the costs of servicing warranties are not incurred evenly, warranty revenues are recognized based on the proportion of costs incurred out of the total estimated costs. (a2) For the service-type approach, prepare the necessary journal entries to record all of the transactions described. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select "No Entry for the account titles and enter O for the amounts) Account Titles and Explanation (To record sales on account) (To record warranty expense) (To remeasure unearned revenue) Determine the unearned revenue and expense amounts for 2023. Unearned revenue $ Warranty expense $ Debit 10 00 00 Credit 00000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Bridgeport Machinery Co. manufactures equipment to a very high standard of quality; however, it must still provide a warranty for
each unit sold, and there are instances where the machines do require repair after they have been put into use. Bridgeport started in
business in 2023, and as the controller, you are trying to determine whether to use the assurance-type or service-type warranty
approach to measure the warranty obligation. You would like to show the company president how this choice would affect the
financial statements for 2023, and advise him of the better choice, keeping in mind that the service-type approach is consistent with
IFRS, and that there are plans to take Bridgeport public in a few years.
You have determined that sales on account for the year were 1,040 units, with a selling price of $2,700 each. Ignore any cost of goods
sold. The warranty is for two years, and the estimated warranty cost averages $180 per machine. Actual costs of servicing warranties
for the year were $112,320. You have done some research and determined that, if the service-type approach were to be used, the
portion of revenue allocated to the warranty portion of the sale would be $340. Because the costs of servicing warranties are not
incurred evenly, warranty revenues are recognized based on the proportion of costs incurred out of the total estimated costs.
(a2)
For the service-type approach, prepare the necessary journal entries to record all of the transactions described. (Credit account
titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry
is required, select "No Entry" for the account titles and enter O for the amounts.)
Account Titles and Explanation
(To record sales on account)
(To record warranty expense)
(To remeasure unearned revenue)
Determine the unearned revenue and expense amounts for 2023.
Unearned revenue $
Warranty expense $
Debit
0000
Credit
00 00
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