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Chapter 13: Q13BE (page 693)

BE 13-13(L03) Streep Factory provides a 2-year warranty with one of its products which was first sold in 2017. Streep sold \(1,000,000 of products subject to the warranty. Streep expects \)125,000 of warranty costs over the next 2 years. In that year, Streep spent $70,000 servicing warranty claims. Prepare Streep鈥檚 journal entry to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs.

Short Answer

Expert verified

The warranty expense is recorded at $55,000

Step by step solution

01

Meaning of Journal Entry

A journal entry isa detailed record of financial transactions in a business. Recording of a journal entry contains Date or Transaction Number, Particulars, Debit, and Credit columns.The debit amount and the credit amount should be equal. A short narration is written at the end of a journal entry.

02

Journal Entries

Transaction No.

Accounts and Explanations

Debit

Credit

1

Cash / Accounts Receivable

$1,000,000

Sales Revenue

$1,000,000

(To record sales revenue)

2

Warranty Expenses

$70,000

Inventory

$70,000

(To record the warranty expenses)

3

Warranty Expenses($125,000-$70,000)

$55,000

Warranty Liability

$55,000

(To record the adjusting entry)

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Most popular questions from this chapter

Mayaguez Corporation provides its officers with bonuses based on net income. For 2017, the bonuses total $350,000 and are paid on February 15, 2018. Prepare Mayaguez鈥檚 December 31, 2017, adjusting entry and the February 15,2018, entry.

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.

(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

(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.

BE13-2 (L01) Upland Company borrowed \(40,000 on November 1, 2017, by signing a \)40,000, 9%, 3-month note. Prepare Upland鈥檚 November 1, 2017, entry; the December 31, 2017, annual adjusting entry; and the February 1, 2018, entry.
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