CHAPTER 3

PROBLEM 7
PRESNTED BY: MARINELLA A. LOSA
AnnalieseCompany sells televison at an average price of P9,000 and also offers a
separate three-year warranty contracts for P900 that requires the entity to perform
periodic services and replace defective price. During 2020, the entity sold 300
television sets and 270 extended warranty contracts for cash. The entity estimated
the three-year warranty cost as P200 for parts and P400 for labor and accounts for
the sale of warranty separately. The sale occured on December 31, 2020. The
entity recognized income from the sale of warranty on a straight line basis. In
2021, the entty incurred actual cost relative to the warranty of P20,000 for parts
and P40,000 for labor.

REQUIRED:
• PREPARE JOURNAL ENTRIES IN 2020 AND 2021
• HOW IS THE UNEARNED REVENUEFROM WARRANTY CONTRACTS PRESENTED ON
DECEMBER 31, 2021?
 Requirement 1

DATE PARTICULARS DEBIT CREDIT

2020 CASH P 2, 943, 000

SALES REVENUE P 2, 700, 000
UNEARNED WARRANTY REVENUE 243, 000

UNEARNED WARRANTY REVENUE 81, 000

WARRANTY REVENUE 81, 000
2021
WARRANTY EXPENSE 60, 000
INNVENTORY PARTS 20, 000
SALARIES & WAGES PAYABLE 40,000
 Requirement 1

DATE PARTICULARS DEBIT CREDIT

2020 CASH (3000 X 9000) + (270 X 900) P 2, 943, 000

SALES REVENUE (270 X 900) P 2, 700, 000
UNEARNED WARRANTY REVENUE (3000 X 9000) 243, 000

UNEARNED WARRANTY REVENUE (243, 000/3) 81, 000

WARRANTY REVENUE 81, 000
2021
WARRANTY EXPENSE (20, 000 + 40, 000) 60, 000
INNVENTORY PARTS 20, 000
SALARIES & WAGES PAYABLE 40,000
 Requirement 2

CLASSIFIED AS CURRENT LIABILITIES

UNEARNED WARRANTY REVENUE (243, 000/3) P 81, 000

CLASSIFIED AS LONG TERM LIABILITIES

UNEARNED WARRANTY REVENUE (243, 000/3) 81, 000