ABC Inc. sold a DVD player to a client on June 30^th, Year 2 for $150. The DVD player, which came with a 2-year warranty, was thought to be worth $100 if sold without the warranty. As a result of this sale, how much sales/revenue would ABC Inc. take into income on its December 31^st, Year 2 income statement?

Question

Quizplus · Accepted Answer

ABC Inc. sold the DVD player on June 30, Year 2 for $150, but the value of the DVD player without the warranty was $100. Therefore, $50 of the price paid by the client was allocated to the warranty ($150 - $100). Since the warranty covers 2 years, the portion of revenue recognized at December 31, Year 2 is $50/2 = $25. Therefore, the amount of revenue that ABC Inc. would take into income on its December 31, Year 2 income statement is $100 (value of DVD without warranty) + $25 (portion of revenue recognized) = $125.00.

ABC Inc Sold a DVD Player to a Client on June