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Bret Company sold 3,000 Holsks during 2017 at a total price of $12,000,000, with a warranty guarantee that the product was free of any defects. The cost of Holsks sold is $7,200,000. The term of the assurance warranty is two years, with an estimated cost of $80,000. In addition, Bret sold extended warranties related to 1,100 Holsks for 3 years beyond the 2-year period for $110,000. Bret should recognize Unearned Warranty Revenue in 2017 of:_______
a) $110,000
b) $190,000
c) $ 0
d) $ 80,000

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Answer:

Option A is the correct answer - Bret should recognize Unearned Warranty Revenue in 2017 of $110,000.

Explanation:

The payments for future services to be performed or goods to be delivered area referred to as unearned revenues.

Total sales value of 3,000 holsks was $12,000,000.

The warranty offered by the manufacturer is for 2 years

The extended warranty for three years for 1,100 holsks is $110,000.

Therefore, Bret should recognize unearned warranty revenue of $110,000 in 2017.

Hence, option A is the correct answer.

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