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Chapter 13: Q.13-10E (page 695)

E13-10 (L03) (Warranties) Soundgarden Company sold 200 color laser copiers on July 10, 2017, for \(4,000 apiece, together with a 1-year warranty. Maintenance on each copier during the warranty period is estimated to be \)330.

Instructions

Prepare entries to record the sale of the copiers, the related warranty costs, and any accrual on December 31, 2017. Actual warranty costs (inventory) incurred in 2017 were $17,000.

Short Answer

Expert verified

Answer:

The amount of sales revenue for the company is $800,000.

Step by step solution

01

Meaning of Journal Entry

The journal entry is the act of keeping a record of any transactions and events, either economic or non-economic. The recording of journal entry includes Serial number or transaction number, Date, Accounts titles and explanations, debit and credit, and narrations.

02

Recording of the entries

Date

Accounts Titles and Explanations

Debit

Credit

July 10, 2017

Cash

$800,000

Sales Revenue

$800,000

Dec 31, 2017

Warranty Expenses

$17,000

Inventory

$17,000

Dec 31, 2017

Warranty Expenses

$49,000

Warranty Liability

$49,000

Explanations:

Sales Revenue = (200 脳 $4,000) = $800,000

Warranty expenses = $17,000 (Given)

Warranty liability = [(200 脳 330) - $17,000] = ($66,000 - $17,000) = $49,000

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Most popular questions from this chapter

Question: (Lessee-Lessor Entries, Operating Lease) Cleveland Inc. leased a new crane to Abriendo Construction under a 5-year noncancelable contract starting January 1, 2017. Terms of the lease require payments of \(33,000 each January 1, starting January 1, 2017. Cleveland will pay insurance, taxes, and maintenance charges on the crane, which has an estimated life of 12 years, a fair value of \)240,000, and a cost to Cleveland of \(240,000. The estimated fair value of the crane is expected to be \)45,000 at the end of the lease term. No bargain-purchase or -renewal options are included in the contract. Both Cleveland and Abriendo adjust and close books annually at December 31. Collectibility of the lease payments is reasonably certain, and no uncertainties exist relative to unreimbursable lessor costs. Abriendo鈥檚 incremental borrowing rate is 10%, and Cleveland鈥檚 implicit interest rate of 9% is known to Abriendo.

Instructions

  1. Identify the type of lease involved and give reasons for your classification. Discuss the accounting treatment that should be applied by both the lessee and the lessor.


Question: 13-17 (L04) (Ratio Computations and Discussion) Sprague Company has been operating for several years, and on December 31, 2017, presented the following balance sheet.

SPRAGUE COMPANY
BALANCE SHEET
DECEMBER 31, 2017

Cash

\(40,000

Accounts payable

\)80,0000

Receivables

\(75,0000

Mortgage payable

\)140,000

Inventory

\(95,000

Common stock (\)1 par)

\(150,000

Plant assets (net)

\)220,000

Retained earnings

\(60,000

\)430,000

\(430,000

The net income for 2017 was \)25,000. Assume that total assets are the same in 2016 and 2017.

Instructions

Compute each of the following ratios. For each of the four, indicate how it is computed and its significance as a tool in the analysis of the financial soundness of the company.

(a) Current ratio. (C) Debt to assets ratio.

(b) Acid-test ratio. (d) Return on assets.

Question: (Derivative Financial Instrument) Johnstone Co. purchased a put option on Ewing common shares on July 7,

2017, for \(240. The put option is for 200 shares, and the strike price is \)70. (The market price of a share of Ewing stock on that

date is \(70.) The option expires on January 31, 2018. The following data are available with respect to the put option.

Date Market Price of Ewing Shares Time Value of Put Option

September 30, 2017 \)77 per share $125

December 31, 2017 75 per share 50

January 31, 2018, 78 per share 0

Instructions

Prepare the journal entries for Johnstone Co. for the following dates.

(a) July 7, 2017鈥擨nvestment in a put option on Ewing shares.

(b) September 30, 2017鈥擩ohnstone prepares financial statements.

(c) December 31, 2017鈥擩ohnstone prepares financial statements.

(d) January 31, 2018鈥擯ut option expires.

(Premium Entries) No Doubt Company includes 1 coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2017, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box; 44,000 coupons were presented for redemption in 2017. It is estimated that 60% of the coupons will eventually be presented for redemption.

Instructions

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2017.

(Equity Securities Entries) McElroy Company has the following portfolio of investment securities at September

30, 2017, its most recent reporting date.

Investment Securities Cost Fair Value

Horton, Inc. common (5,000 shares) \(215,000 \)200,000

Monty, Inc. preferred (3,500 shares) 133,000 140,000

Oakwood Corp. common (1,000 shares) 180,000 179,000

On October 10, 2017, the Horton shares were sold at a price of \(54 per share. In addition, 3,000 shares of Patriot common stock

were acquired at \)54.50 per share on November 2, 2017. December 31, 2017, fair values were Monty \(106,000, Patriot

\)132,000, and Oakwood $193,000.

Instructions

Prepare the journal entries to record the sale, purchase, and adjusting entries related to the equity securities in the last quarter of 2017
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