Question

Draper Company sold $200,000 of extended warranties in 20X8. The warranty represents a separate performance obligation and covers any repairs needed over the next four years. The warranty takes effect on January 1, 20X9. Draper uses a straight‐line approach to recognize warranty revenue. What amounts of Warranty Revenue and Unearned Warranty Revenue, respectively, should Draper report in its December 31, 20X9, Income Statement and Balance Sheet?

Answer 1

Answer:

What amounts of

Warranty Revenue                             50000

Unearned Warranty Revenue          150000

Explanation:

Cash                          200000  

Unearned revenue           200000

Sold warranty  

 

Unearned Revenue           50000

Extended warranty                         50000  

Answer 2

Based on the warranty period, the warranty revenue will be $50,000 and the unearned warranty revenue will be $150,000.

What is the warranty revenue?

This refers to the warranty for the year that wasn't claimed by customers.

This amount is:

= Total warranty / Number of years served

= 200,000 / 4

= $50,000

What is the unearned warranty revenue?

This is the warranty left to be claimed:

= Total warranty - Warranty for 20X9:

= 200,000 - 50,000

= $150,000

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