Kingbird Corporation sells DVD players. The corporation also offers its customers a 4-year warranty contract. During 2020, Kingbird sold 20,000 warranty contracts at $114 each. The corporation spent $188,000 servicing warranties during 2020, and it estimates that an additional $940,000 will be spent in the future to service the warranties.
Required:
a. Prepare Kingbird’s journal entries for the sale of contracts. Assume the service costs are inventory costs. b. Prepare Kingbird’s journal entries for the cost of servicing the warranties. Assume the service costs are inventory costs. c. Prepare Kingbird’s journal entries for the recognition of warranty revenue. Assume the service costs are inventory costs.