Headland Inc. manufactures and sells computers that include an assurance-type warranty for the first 90 days. Headland offers an optional extended coverage plan under which it will repair or replace any defective part for 3 years from the expiration of the assurance-type warranty. Because the optional extended coverage plan is sold separately, Headland determines that the 3 years of extended coverage represents a separate performance obligation. The total transaction price for the sale of a computer and the extended warranty is $3,560 on October 1, 2020, and Headland determines the standalone selling price of each is $3,120 and $440, respectively. Further, Headland estimates, based on historical experience, it will incur $190 in costs to repair defects that arise within the 90-day coverage period for the assurance-type warranty. The cost of the equipment is $1,400. Assume that the $190 in costs to repair defects in the computers occurred on October 25, 2020.
DATEAccount Titles and ExplanationDebitCredit
October 31, 2014
(To record cash sales)
October 31, 2014
(To record the cost of goods sold)



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