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Answer and Explanation:
According to the scenario, computation of the given data are as follow:-
a).
Journal Entry
On 2017
Accounts receivable A/c($1,500 × $1,200) Dr. $1,800,000
To sales A/c $1,800,000
(Being sale of computers is recorded)
For recording this we debited the account receivable as it increased the assets and at the same time it also increased the revenue so the sales is credited
On 2017
Warranty expense A/c {($60+$40) × $1,200} Dr. $120,000
To warrant liability A/c $120,000
(Being the warranty expense is recorded)
For recording this we debited the warranty expense as it increased the expenses and at the same time it also increase the liability so the warranty liability is credited
On 2018
Warranty liability A/c Dr. $40,000
To Cash A/c $24,000
To Inventory A/c $16,000
(Being the warranty liability is recorded)
For recording this we debited the warranty liability as it reduced the liability and credited the cash and inventory as it reduced the assets
b). Balance under current liabilities in 2017 balance sheet is
= $120,000 × 1 ÷ 2
= $60,000
As it is for two years so we take for one year only
a) The journal entries that Merritt Equipment Company will record to reflect the transactions for 2017 and 2018 are as follows:
Journal Entries:
Dec. 31, 2017:
Debit Cash $1,800,000
Credit Sales Revenue $1,800,000
- To record the sale of 1,200 computers at $1,500 each.
Debit Warranty Expenses $120,000
Credit Warranty Liability $120,000
- To record the warranty expenses and liability for the sales above.
2018:
Debit Warranty Liability $40,000
Credit Parts Inventory $16,000
Credit Salaries $24,000
- To record the actual Warranty Liability incurred for 2017.
b) The transactions of part (a) create Warranty Liabilities under the current liabilities section of the 2017 balance sheet.
Data Analysis:
Dec. 31, 2017:
Cash $1,800,000 Sales Revenue $1,800,000
Warranty Expenses $120,000 Warranty Liability $120,000 (1,200 x $40 + 1,200 x $60)
2018: Warranty Liability $40,000 Parts Inventory $16,000 Salaries $24,000
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