Chapter 13 - Test Bank 209 - with sales on 1/1 earning 6...

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143. Sunnyvale Computer Company sells a line of computers that carry a six-month warranty. Customers are offered the opportunity to buy a two-year extended warranty for an additional charge. During 2013, Sunnyvale received $320,000 from customers for these extended warranties. All sales are on credit, and funds are received evenly throughout the year and the warranties go into effect immediately after purchase. Required: Prepare a summary journal entry to record sales of the extended warranties. Also prepare any other entries associated with the warranties that should be recorded during 2013. If extended warrantees don't earn any revenue for 180 days (because normal 6-month warranty is in effect), then only sales up until 6/30 can earn any extended-warranty revenue,
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Unformatted text preview: with sales on 1/1 earning 6 months worth of revenue, and sales on 6/30 earning 1 day of revenue. If sales proceed smoothly during the year, we can assume that, as of 6/30, they have made $320,000(.5) = $160,000 of sales. So, during that 6 month period, the $160,000 is outstanding an average of 3 months, and so should earn 3/24 x $160,000 of revenue, or $20,000. AACSB: Analytic AICPA FN: Measurement Blooms: Apply Difficulty: 2 Medium Learning Objective: 13-06 Demonstrate the appropriate accounting treatment for contingencies; including unasserted claims and assessments. Topic: Accounting for contingencies...
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