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Chapter 13: Q11E (page 695)

E13-11 (L03) (Warranties) Early in 2017, Sheryl Crow Equipment Company sold 500 Rollomatics during 2017 at \(6,000each. During 2017, Crow spent \)20,000 servicing the 2-year assurance warranties that accompany the Rollomatic. All applicabletransactions are on a cash basis.Instructions(a) Prepare 2017 entries for Crow. Assume that Crow estimates the total cost of servicing the warranties will be \(55,000 for2 years.(b) Prepare 2017 entries for Crow assuming that the warranties are not an integral part of the sale (a service-type warranty).Assume that of the sales total, \)56,000 relates to sales of warranty contracts. Crow estimates the total cost of servicingthe warranties will be $55,000 for 2 years. Estimate revenues to be recognized on a straight-line basis.

Short Answer

Expert verified

The sales revenue is $3,000,000.

Step by step solution

01

Meaning of Journal Entry

The journal entry meansrecording the business's daily transactionsin the books of accounts in the order in which they occurred.

02

Step 2:Showing journal entries forpart (a)

Sheryl Crow Equipment company
Journal entries

Date

Account and explanation

Debit ($)

Credit ($)

2017

Cash

3,000,000

Sales revenue

3,000,000

(Tosales revenue is recorded)

2017

Warranty expenses

55,000

Cash

20,000

Warranty liability ($55,000-$20,000)

35,000

(To warranty expenses paid are recorded)

03

Showing  journal entries for part (b)

Sheryl Crow Equipment company
Journal entries

Date

Account and explanation

Debit ($)

Credit ($)

2017

Cash

3,000,000

Sales revenue ($3,000,000 鈥� $56,000)

2,944,000

Unearned warranty revenue

56,000

(Tosales revenue is recorded)

2017

Warranty expenses

20,000

Cash

20,000

(To warranty expenses paid are recorded)

2017

Unearned warranty revenue

20,364

Warranty revenue

20,364

(To recordunearned warranty revenue)

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Most popular questions from this chapter

BE13-4 (L01) Sport Pro Magazine sold 12,000 annual subscriptions on August 1, 2017, for $18 each. Prepare Sport Pro鈥檚 August 1, 2017, journal entry and the December 31, 2017, annual adjusting entry, assuming the magazines are published and delivered monthly.

(Payroll Tax Entries) The following is a payroll sheet for Otis Import Company for the month of September 2017. The company is allowed a 1% unemployment compensation rate by the state; the federal unemployment tax rate is 0.8% and the maximum for both is \(7,000. Assume a 10% federal income tax rate for all employees and a 7.65% FICA tax on employee and employer on a maximum of \)118,500. In addition, 1.45% is charged both employer and employee for an employee鈥檚 wages in excess of \(118,500 per employee.

Name

Earnings to Aug. 31

September earnings

Income tax Withholdings

FICA

Unemployment tax

State

Federal

B.D. Williams

\)6,800

$800

D. Raye

6,500

700

K. Baker

7,600

1,100

F. Lopez

13,600

1,900

A. Daniels

107,000

13,000

B. Kingston

112,000

16,000

Instructions

(a) Complete the payroll sheet and make the necessary entry to record the payment of the payroll.

(b) Make the entry to record the payroll tax expenses of Otis Import Company.

(c) Make the entry to record the payment of the payroll liabilities created. Assume that the company pays all payroll liabilities at the end of each month.

Question: At what amount should trading, available-for-sale, and held-to-maturity debt securities be reported on the balance sheet?

BE13-5 (L01) Dillons Corporation made credit sales of \(30,000 which are subject to 6% sales tax. The corporation also made cash sales which totalled \)20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons鈥� credit sales. (b) Prepare the entry to record Dillons鈥� cash sales.

(Financial Statement Impact of Liability Transactions) Presented below is a list of possible transactions.

1. Purchased inventory for \(80,000 on account (assume perpetual system is used).

2. Issued an \)80,000 note payable in payment on account (see item 1 above).

3. Recorded accrued interest on the note from item 2 above.

4. Borrowed \(100,000 from the bank by signing a 6-month, \)112,000, zero-interest-bearing note.

5. Recognized 4 months鈥� interest expense on the note from item 4 above.

6. Recorded cash sales of \(75,260, which includes 6% sales tax.

7. Recorded wage expense of \)35,000. The cash paid was $25,000; the difference was due to various amounts withheld.

8. Recorded employer鈥檚 payroll taxes.

9. Accrued accumulated vacation pay.

10. Recorded an asset retirement obligation.

11. Recorded bonuses due to employees.

12. Recorded a contingent loss on a lawsuit that the company will probably lose.

13. Accrued warranty expense.

14. Paid warranty costs that were accrued in item 13 above.

15. Recorded sales of product and related service-type warranties.

16. Paid warranty costs under contracts from item 15 above.

17. Recognized warranty revenue (see item 15 above).

18. Recorded estimated liability for premium claims outstanding. InstructionsSet up a table using the format shown below and analyze the effect of the 18 transactions on the financial statement categories indicated.

#AssetsLiabilitiesOwners鈥� EquityNet income
1

Use the following code:I: Increase D: Decrease NE: No net effect
See all solutions

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