ILLUSTRATION PROBLEM [Sale of Warranty]

 Extended period of warranty. Only the warranty is sold.

 Cash that we receive from “Sale of Warranty” is called Deferred Revenue
Account title: Unearned Warranty Revenue [Liability account]

AWP sold its home appliance products for P1,000,000. The product have an original/regular warranty
period of one year, but AWP sold an additional warranty of two years for P50,000.

1. To record the sale:

Cash 1,050,000
Sale 1,000,000
Unearned 50,000
Warranty Revenue

2. To record warranty revenue at the end of the second year.

[50,000 / 2 years = 25,000]
Unearned 25,000
Warranty Revenue
Warranty Revenue 25,000