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Accounting for Extended Warranty ContractsExampleStereoContractTotalRevenue10001001100Cost90020920Profit10080180MethodsFull revenue recognition: Recognize full revenue and cost on the date of sale. Hence full profit of $180 will be recognized. If during the service term of 2 years, the service cost exceeds or falls short of $20, adjustment will be made on a later date.Deferred Revenue Recognition: Sale of stereo and sale.