| Course | AC301 Intermediate Accounting II |
|---|---|
| Unit | Unit 3 |
| Paper type | Warranty estimation exercise |
| Length | About 630 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC301 Unit 3
A Free Warranty and a Paid Plan on the Same Pool Robot: A Unit 3 Warranty Estimation Exercise
[Student Name]
Purdue University Global
AC301: Intermediate Accounting II
Unit 3 Warranty Estimation Exercise
[Instructor Name]
[Date]
Clearwake Robotics, its products and every amount are composite; the standards and textbook cited are real.
Facts
In its first full year, Clearwake sold 2,000 cleaners at $1,200 each, $2,400,000 of sales. The standard warranty repairs or replaces a unit that fails from a defect within twelve months. Testing data and the experience of a similar model suggest repair costs of 3 percent of sales. Separately, 600 buyers paid $180 each for a protection plan covering motors, drive tracks and accidental damage for the three years after the standard warranty expires. Clearwake sells the plan on its own at the same price.
Two Obligations, Two Treatments
The included warranty only promises that the cleaner works as specified. It is an assurance-type warranty, so it is not a separate performance obligation. The full $1,200 is revenue at the sale, and the expected cost of honoring the promise is accrued as a liability in the same period, with disclosure of the changes in the liability during the year (Financial Accounting Standards Board, 2002).
The protection plan promises something more: repairs after the defect period and coverage for accidents a buyer might cause. Because buyers can choose it and pay for it on its own, the plan is a separate service Clearwake owes, a distinct performance obligation. Its price is a contract liability until the coverage is provided (Financial Accounting Standards Board, 2014).
The included warranty is an expense estimated now because Clearwake has already earned the sale, while the plan is revenue Clearwake has not yet earned because the service it pays for has not started.
Schedule 1: Assurance Warranty, Year 1
1. Warranty expense accrued: 3 percent of $2,400,000, $72,000.
2. Claims paid in Year 1, parts and technician labor: $43,000.
3. Liability carried into Year 2: $29,000.
Entries, summarized for the year: Warranty Expense, debit $72,000; Warranty Liability, credit $72,000. Warranty Liability, debit $43,000; Cash, Parts Inventory and Wages Payable, credits totaling $43,000.
Because the warranty runs twelve months from each sale and sales were spread over the year, roughly half the coverage remains at year end, so a $29,000 balance looks reasonable. Clearwake will compare it with claims as they arrive.
Schedule 2: Protection Plan, Year 1
1. Plan sales: 600 times $180, $108,000.
2. Revenue recognized in Year 1: none, since no plan coverage has begun.
3. Contract liability at year end: $108,000.
Entry: Cash, debit $108,000; Unearned Protection Plan Revenue, credit $108,000.
Coverage begins for each buyer twelve months after the purchase and runs three years, so the plan revenue will be recognized evenly across that service period, about $36,000 a year once all plans are in force. Costs of plan repairs are expensed as incurred, not charged against the contract liability.
Year 2: Following Both Obligations
Claims under the standard warranty for Year 1 sales came to $26,800 in Year 2, leaving $2,200 of the liability unused once every Year 1 cleaner was past twelve months. The excess is a change in estimate, reversed against warranty expense in Year 2, and the 3 percent rate is reviewed for Year 2 sales (Kieso et al., 2019).
On the plan side, coverage was in force for about half of Year 2 on average, so $18,000 of plan revenue was recognized, and $6,400 of plan repair costs were expensed.
Presentation
At the end of Year 1, the $29,000 warranty liability is current. Of the $108,000 contract liability, only the part to be earned within a year is current; the rest is noncurrent. The notes reconcile the warranty liability from opening to closing balance.
References
Financial Accounting Standards Board. (2002). Guarantor's accounting and disclosure requirements for guarantees, including indirect guarantees of indebtedness of others (FASB Interpretation No. 45). https://www.fasb.org
Financial Accounting Standards Board. (2014). Revenue from contracts with customers (Topic 606) (Accounting Standards Update No. 2014-09). https://www.fasb.org
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
AC301 Unit 3 instructions, in plain terms
The third AC301 unit asks students to estimate warranty costs and to separate warranties that assure quality from those that sell an added service. Begin with the facts: units sold, price, warranty terms, the expected cost rate and any separately priced plan. Classify each warranty with a reason, testing whether it only promises that the product works or adds coverage a buyer pays for. Accrue the expected cost of the assurance warranty in the year of sale, and track claims against that liability. Defer the price of a service plan and recognize it over the coverage period. Some prompts carry the problem into a second year, so show how unused accruals and plan revenue move. Close with classification of the balances and the required reconciliation. Use numbered schedules. Cite the guarantee interpretation and the revenue update in APA 7.
How this AC301 Unit 3 example is built
The sample states the facts in one paragraph, including that Clearwake sells the plan on its own at $180. A section on two obligations explains that the defect warranty is assurance-type and accrued, while the plan is a distinct performance obligation and deferred; the highlighted sentence contrasts the two. Schedule 1 accrues $72,000, records $43,000 of claims and carries $29,000 forward, with a comment that about half the coverage remains. Schedule 2 records $108,000 of plan sales and explains that no revenue is earned until each buyer's standard warranty expires. A Year 2 section shows claims of $26,800, a $2,200 reversal as a change in estimate, and $18,000 of plan revenue with $6,400 of repair costs. The final section classifies the warranty liability as current and splits the contract liability.
Reading the AC301 Unit 3 grading rubric
Graders of this AC301 exercise look first at the classification of each warranty, since everything else follows from it. The accrual is checked for the correct rate and base. The liability roll-forward, accrual less claims, must reconcile. Deferral of the plan revenue and the timing of its recognition earn a separate block of points, and recognizing any of it before coverage begins costs credit. Expensing plan repair costs as incurred, not against the contract liability, shows a finer understanding. A second-year section, when assigned, is graded on treating the unused accrual as a change in estimate. Classification of current and noncurrent portions shows attention to presentation. When one claim figure is off, tidy schedules still let the instructor award the method marks. Each standard applied, FIN 45 and the revenue update among them, should carry its APA 7 citation in this Purdue Global course.
Common AC301 Unit 3 mistakes, and how to avoid them
Warranty exercises most often go wrong when students treat every warranty the same way, accruing the plan as expense or deferring the assurance warranty as revenue. Others recognize plan revenue from the date of sale even though coverage starts a year later. The warranty accrual is sometimes based on claims paid instead of expected costs. Some papers charge plan repairs against the warranty liability. A leftover accrual is reversed as an error correction instead of a change in estimate. The contract liability is shown as wholly current when most of it will be earned after twelve months. Papers often skip the reasoning for classification and jump to entries. If your product carries an extended warranty sold by a retailer or a warranty required by law, our accountants can classify it and build the schedules for your problem.
Get an AC301 Unit 3 example written to your instructions
If your Unit 3 problem sells coverage separately, the second schedule applies; if not, only the accrual does. Share the sales figures, warranty terms, cost estimates, claims data and rubric, and the schedules come back with every entry, worked from those figures, inside 24-48h. There is no fee for the first custom sample. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC301 Unit 3 questions, answered
How can a warranty be identified as assurance or service?
Ask whether it only promises that the product works as specified, or whether it adds a service beyond that. Warranties required by law, covering a short period, or bundled without a separate price usually provide assurance. Coverage sold separately, lasting beyond the normal defect period, or including maintenance usually provides a service. AC301 problems generally make the distinction visible through pricing and term.
What happens when actual claims run above the estimate?
The estimate is revised prospectively. If claims show the 3 percent rate was too low, the next accrual uses a higher rate and the liability is brought to the level the new estimate requires, with the adjustment in current expense. Prior statements stay as issued because the original estimate was reasonable when made. The sample notes the revision in a sentence where the problem supplies the facts.
Is the protection plan revenue always recognized evenly?
Not necessarily. Straight-line recognition fits when claims are expected evenly across the coverage years, which is the assumption this sample makes. If experience shows repairs cluster in the final year, revenue would follow that pattern instead. Most AC301 problems specify straight-line or give the expected pattern, and the sample follows the problem rather than imposing one.
Where can I find a free AC301 Unit 3 sample paper?
This page gives a complete AC301 Unit 3 warranty estimation exercise for a composite pool robot maker, accruing an assurance warranty, deferring a protection plan, following both into a second year, with APA 7 references.
Why is no plan revenue recognized in the first year of the AC301 Unit 3 sample?
Clearwake's plan covers the three years after the standard warranty ends. Until a buyer's first year passes, no plan service has been provided, so the full $108,000 stays a contract liability.