Computers Galore Ltd sells computers computer

accessories and software On #268

Computers Galore Ltd. sells computers, computer accessories, and software. On its computer
sales, the company provides a one-month warranty that is included in the cost of the computer.
Claims under the warranties vary from replacing defective parts to providing customers with new
computers if repairs cannot be made. During 2011, the estimated cost related to the one-month
warranties was $40,000, of which $36,000 had been incurred before year end.For an additional
charge of $100, Computers Galore also offers extended warranty coverage for two years on its
computers. This amount is expected to cover the costs associated with the extended warranties.
During 2011, Computers Galore sold 800 two-year warranties. The costs incurred during the
year for repairs and replacements under these warranties amounted to $31,000.Required:a.
Prepare journal entries to record the warranty transactions for 2011.b. Should Computers
Galore classify its warranty obligations as current or non-current? Explain.c. If the actual costs
incurred by the company under the extended warranties are less than the amount charged for
them, how should the company account for the difference?View Solution:
Computers Galore Ltd sells computers computer accessories and software On

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