42) Charter Services sells a service plan for commercial computer maintenance. The price is $1,200 per year, paid in advance. On December 1, 2013, Charter sells a service plan to a new customer for cash. Please provide the journal entry to record the adjustment needed on December 31, 2013.
Learning Objective 10-2
1) When the likelihood of an actual loss is probable, and the amount can be estimated, it should be recorded as an expense and as a liability.
2) The entry to estimate warranty payable includes a credit to Warranty expense.
3) A contingent liability that has a remote possibility of becoming an actual loss is included in a note to the financial statements.
4) A contingent liability that will probably become an actual liability, and can be reasonably estimated, must be recorded as an expense.
5) Contingent liabilities sometimes pose an ethical challenge because they are not real liabilities and are easy to overlook.
6) Estimated warranty payable would be included in the liability section of the balance sheet.
7) Estimated warranty payable would be included in the operating expense section of the income statement.
8) Warranty expense would be included in the liability section of the balance sheet.