question archive You have recently been hired as an Accountant for Sask Corp
You have recently been hired as an Accountant for Sask Corp
Subject:AccountingPrice: Bought3
You have recently been hired as an Accountant for Sask Corp., a manufacturer of equipment. Sask follows ASPE but is considering becoming a public company in the next year. Sask provides a 2 year warranty on its equipment sales and you are examining whether to treat the warranty as a Service-type or Assurance-type warranty for accounting purposes. Revenue would be realized on a straight-line basis if the Service-type approach is followed. Your research has uncovered the following data: Sales 80 units at $1,900 each (for simplicity assume all are cash sales and occur on December 31, 2020) Average cost of equipment $1,420 per unit Estimated warranty costs $150 per unit Actual 2021 costs incurred $5,600 Fair value of warranty $200 per unit
a) For both the Service-type and Assurance-type approaches, make all necessary journal entries for 2020 & 2021
b) Which approach is preferable? Support your conclusion with applicable account balances as at December 31, 2020
