Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the...
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Entertainment Tonight, Inc. manufactures and sells stereo systems that include an assurance-type warranty for the first 90 days. Entertainment Tonight also offers an optional extended coverage plan under which it will repair or replace any defective part for 2 years beyond the expiration of the assurance-type warranty. The total transaction price for the sale of the stereo system and the extended warranty is $3,000. The standalone price of each is $2,300 and $800, respectively. The estimated cost of the assurance-warranty is $350. The accounting for warranty will include a credit to Unearned Warranty Revenue, $800.
Could you please explain why we are able to use the $800 standalone price with journal entries? I don't understand how to balance the cash receieved and the revenues/unearned revenues.
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