1. Extended Warranties Dos Passos Company sells televisions at an average price of $900 and also offers to each customer a separate 3-year warranty contract for $90 that requires the company to perform periodic services and to replace defective parts. During 2010, the company sold 300 televisions and 270 warranty contracts for cash. It estimates the 3-year warranty costs as $20 for parts and $40 for labor and accounts for warranties separately. Assume sales occurred on December 31, 2010, income is recognized on the warranties, and straight-line recognition of warranty revenues occurs.
(a) Record any necessary journal entries in 2010.
(b) What liability relative to these transactions would appear on the December 31, 2010, balance sheet and how would it be classified? In 2011, Dos Passos Company incurred actual costs relative to 2010 television warranty sales of $2,000 for parts and $4,000 for labor.
(c) Record any necessary journal entries in 2011 relative to 2010 television warranties.
(d) What amounts relative to the 2010 television warranties would appear on the December 31, 2011, balance sheet and how would they be classified?