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Chapter 13: Question 23Q (page 691)

Explain the accounting for a service-type warranty.

Short Answer

Expert verified

Service type warranties are additional services provided apart from assurance and separately customer pays for the additional service. They are accounted under IFRS 15.

Step by step solution

01

Definition of Service-Type Warranty

Service type warranty is a warranty that is gives something extra apart from assurance like extra services.

02

Accounting for service-type warranty

Service type warranties are those warranties that provide something additional, apart from mere assurance. They give a separate performance obligation because they provide additional service to the customer as they pay separately for such services and they are accounted under IFRS 15.

For example, Product A has a warranty for 1year (assurance warranty) that it will function well till 1year but an additional warranty of providing extra service on such product to the customer is a service type of warranty.

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Most popular questions from this chapter

BE13-2 (L01) Upland Company borrowed \(40,000 on November 1, 2017, by signing a \)40,000, 9%, 3-month note. Prepare Upland’s November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.

(Equity Investment) Oregon Co. had purchased 200 shares of Washington Co. for \(40 each this year (Oregon

Co. does not have significant influence). Oregon Co. sold 100 shares of Washington Co. stock for \)45 each. At year-end, the price

per share of the Washington Co. the stock had dropped to $35.

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Prepare the journal entries for these transactions and any year-end adjustments.

Under what conditions must an employer accrue a liability for the cost of compensated absences?

BE13-10 (L03) Scorcese Inc. is involved in a lawsuit at December 31, 2017. (a) Prepare the December 31 entry assuming it is probable that Scorcese will be liable for $900,000 as a result of this suit. (b) Prepare the December 31 entry, if any, assuming it is not probable that Scorcese will be liable for any payment as a result of this suit.

(Debt Investments) Presented below is information from a bond investment amortization schedule with

related fair values provided. These bonds are classified as available-for-sale.

12/31/17 12/31/18 12/31/19

Amortized cost \(491,150 \)519,442 \(550,000

Fair value 497,000 509,000 550,000

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(a) Indicate whether the bonds were purchased at a discount or a premium.

(b) Prepare the adjusting entry to record the bonds at fair value on December 31, 2017. The Fair Value Adjustment account

has a debit balance of \)1,000 before adjustment.

(c) Prepare the adjusting entry to record the bonds at fair value on December 31, 2018.
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