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Choose a response, then check the answer and explanation.
A retailer sells an appliance for $1,800. Its included one-year warranty only assures that the appliance meets the agreed specifications. It provides no additional maintenance or other service. Assume its expected cost qualifies for accrual at the sale date.
The customer also pays $250 for an optional three-year service plan that starts after the included warranty expires. The supplied allocation assigns $250 to that distinct service. None has been provided at the sale date; revenue will follow the service over its term. Choose the treatment of the two promises.
The machine-checked entry covers only the separately sold $250 service plan at the sale date. It records cash and a contract liability because none of that service has transferred. The product sale and assurance accrual remain outside the bounded calculation because the prompt does not supply their allocation or expected warranty cost.
A separately purchasable warranty is a distinct service under ASC 606-10-55-31. If separate purchase is unavailable, inspect what the promise provides: 55-32 retains an exception for service beyond assurance of product specifications. An included warranty is therefore not automatically a cost accrual.