Alaska Computer Company sells computers for $2,000 each, which includes a 3-year warranty that requires the company to perform periodic services and to replace defective parts. During 2017, Alaska sold 500 computers on account. Based on past experience, the company has estimated the total 3-year warranty costs at $80 for parts and $100 for labour. (Assume sales all occur at December 31, 2017.)
In 2018, Alaska Computer Company incurred actual warranty costs relative to 2014 computer sales of $10,000 for parts and $12,000 for labour.
a)Using the expense warranty approach, prepare the entries to reflect the above transactions (accrual method) for 2017 and 2018.
b)Using the cash basis method, what are the Warranty Expense balances for 2017 and 2018?
c)The transactions of part a) create what balance under current liabilities in the 2017 statement of financial position?
Pr. 13-87Unredeemed coupons
During 2017, Red Deer Corp. sold 200,000 tickets for hockey games for $60 each under a new sales promotion program. Each ticket contains one coupon. Any person who presents 2 coupons can receive a ticket to an Edmonton Flames football game for only $2. Red Deer pays $8.00 per football ticket and at the beginning of 2017 had purchased 80,000 tickets (any tickets not used in 2017 can be used in 2018). The company estimates that 60% of the coupons will be redeemed even though only 50,000 coupons had been processed during 2017.
a)What amount should Red Deer report as a liability for unredeemed coupons on December 31, 2017?
b)What amount of expense will Red Deer report on its 2017 income statement as a result of the promotional program?
c)Prepare any necessary 2017 journal entries related to the promotion program.
d)Explain how the accounting treatment for this promotion is treated under IFRS.