Assurance against service: in AC301 Unit 3, the warranty estimation exercise accrues a composite e-bike maker's 108,000 defect warranty and defers 120,000 of protection plan revenue until coverage begins. Searches like "ac 301 unit 3 assignment example", "ac301 unit 3 sample" and "ac301 unit 3 example" land here.
What a finished AC301 Unit 3 warranty estimation exercise looks like
A facts block, two schedules and a set of entries. The facts: 2,000 bikes sold at 1,800 dollars, a standard warranty covering defects for one year with expected costs of 3 percent of sales, and 500 buyers adding a three-year protection plan at 240 each that begins when the standard warranty ends. The first schedule is the assurance warranty. It estimates 108,000 of expense on 3,600,000 of sales, records claims paid of 64,000 against the liability, and carries 44,000 into the next year. The second schedule is the service plan. Its 120,000 sits as a contract liability, with nothing recognized in the first year because coverage has not begun; the schedule then spreads 40,000 into each of the following three years. Entries close the page.
How a AC301 Unit 3 example is structured
The facts come first, split so the reader sees two promises attached to one sale. The assurance warranty is handled before the service plan because it follows the familiar accrual pattern and sets up the contrast: expense estimated when the bike is sold, liability reduced as claims are paid. Its schedule shows the estimate, the claims and the ending balance as a roll-forward. The service plan follows, introduced with the standard's own test: could the customer buy the coverage separately, or does it provide a service beyond assurance that the bike works as promised? Because the plan is sold separately and extends coverage, it is a performance obligation, and its revenue waits for the coverage period. A short paragraph then contrasts the two on the income statement, with repair costs under the plan expensed as incurred.
Two promises, one sale
The standard defect warranty comes with every bike; the protection plan costs 240 and starts after year one. The facts block keeps them apart from the outset.
The assurance warranty, accrued
Three percent of 3,600,000 gives 108,000 of warranty expense in the year of sale. Claims of 64,000 reduce the liability to 44,000 at year end.
Why the plan is a service
It is priced and sold separately and covers years the standard warranty does not reach, so it counts as a distinct performance obligation under ASC 606.
Plan revenue waits for coverage
The 120,000 stays a contract liability through year one and is recognized at 40,000 a year over the three covered years, with repair costs expensed as they arise.
Two effects on income
Warranty expense lowers profit in the sale year; plan revenue raises it later. A short paragraph states both effects and where each appears.
Where marks go in AC301 Unit 3
Treating the protection plan like the standard warranty, accruing an expense for it at the point of sale and recognizing all 240 per plan as revenue, is the costliest mistake on this unit, since it ignores the performance obligation entirely. The mirror error, deferring revenue for the standard warranty, costs almost as much. Recognizing plan revenue in the first year, before coverage starts, draws a separate deduction. Charging claims paid to expense instead of against the liability double-counts warranty cost, and a grader finds it by rebuilding the roll-forward. Ending liabilities that do not reconcile to the estimate less claims lose points in most sections. A revised estimate applied retroactively rather than prospectively costs more, and a missing sentence on repair costs for the plan forfeits a little.
Get a 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.
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.