Question 1 Blue Spruce Corporation sells home entertainment

Question 1 Blue Spruce Corporation sells home entertainment systems. The corporation also offers to sell its customers a two-year warranty contract as a separate service. During 2017, Blue Spruce sold 16,000 warranty contracts at $97 each. The corporation spent $160,000 servicing warranties during 2017, and it estimates that an additional $640,000 wl be spent in the future to service the warranties. Blue Spruce recognizes warranty revenue based on the proportion of costs incurred out of total estimated costs. (a) Prepare Blue Spruce\'s journal entry for the sale of warranty contracts. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select \"No Entry\" for the account titles and enter for the amounts) Account Titles and Explanation Debit Credit

Solution

Journal Entry worksheet for sale of warranty contracts

Blur Spruce Corporation

Accounts Title and Explanation	Debit	Credit
Cash (16000 warranty contracts * $97 per contract)	$1552000
Unearned Warranty Revenue		$1552000
(Being 2 year Warrantry contract sold and cash received. Warranty contract revenue is liability since the warranty services are not provided