HW Chapter 11 part 2 PDF

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Homework chapter 11 - Current Liabilities
Fundamental Accounting Principles 24th Ed....

Description

QS 11 - 9

On September 1, Home Store sells a mower (that costs $200) for $500 cash with a one-year warranty that covers parts. Warranty expense is estimated at 8% of sales. On January 24 of the following year, the mower is brought in for repairs covered under the warranty requiring $35 in materials taken from the Repair Parts Inventory.

Prepare the September 1 entry to record the mower sale (and cost of sale) and the January 24 entry to record the warranty repairs.

Account Titles Date Sep. 1 Cash Sales To record the mower sales.

Debit $ 500

Sep. 1 Cost of goods sold Merchandise Inventory To record the cost of mower sales.

$

Sep. 1 Warranty Expense Estimated Warranty Liability To record the estimated warranty expense ($ 500 x 8%)

$

Jan. 24 Estimated Warranty Liability Repair Parts Inventory To record the cost of warranty repairs.

$

Credit $

500

$

200

$

40

$

35

200

40

35

QS 11 - 11 Huprey Co. is the defendant in the following legal claims. For each of the following claims, indicate whether Huprey should (a) record a liability, (b) disclose in notes, or (c) have no disclosure.

1

Huprey can reasonably estimate that a pending lawsuit will result in damages of $1,250,000. It is probable that Huprey will lose the case. Record a liability. Disclose in notes. Have no disclosure.

2

It is reasonably possible that Huprey will lose a pending lawsuit. The loss cannot be estimated. Record a liability. Disclose in notes. Have no disclosure.

3

reason—it is reasonably estimated and is a probable loss.

reason—it is a possible loss and cannot be reasonably estimated.

Huprey is being sued for damages of $2,000,000. It is very unlikely (remote) that Huprey will lose the case. Record a liability. Disclose in notes. Have no disclosure.

reason—it is unlikely to incur a loss.

EXERCISE 11 - 10 Hitzu Co. sold a copier (that costs $4,800) for $6,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. Hitzu expects warranty costs to be 4% of dollar sales. It records warranty expense with an adjusting entry on December 31. On January 5 of Year 2, the copier requires on-site repairs that are completed the same day. The repairs cost $209 for materials taken from the repair parts inventory. These are the only repairs required in Year 2 for this copier.

1

How much warranty expense does the company report for this copier in Year 1? Warranty Expense = 4% of dollar sales = 4% × $6,000 = $240 = $ 6,000 x 4% = 240

2

How much is the estimated warranty liability for this copier as of December 31 of Year 1? The balance of the liability on December 31 of Year 1 equals the expense because no repairs are provided in Year 1. Therefore, the ending balance of the Estimated Warranty Liability account is $240. = $ 6,000 x 4% = 240

3

How much is the estimated warranty liability for this copier as of December 31 of Year 2? = =

240-209 31

The balance of the Estimated Warranty Liability on December 31 of Year 2 account equals the Year 2 beginning balance minus the costs incurred during Year 2 to repair the copier: Ending Year 1 balance Less parts cost Ending Year 2 balance 4

240 -209 31

How much is the estimated warranty liability for this copier as of December 31 of Year 2? Date Account Titles Aug. 16 Cash Sales To record the sale of a copier for $6,000 cash.

Debit $ 6,000

Credit $

6,000

Aug. 16 Cost of goods sold Merchandise Inventory To record the cost of goods sold of

$

Dec. 1 Warranty Expense Estimated Warranty Liability

$

4,800 $

4,800

$

240

$

209

240

To record the estimated warranty expense at 4% of the sales.($ 6,000 x 4%) Jan. 05 Estimated Warranty Liability Repair Parts Inventory To record the cost of the repairs.

$

209

EXERCISE 11 - 11 For the year ended December 31, Lopez Company implements an employee bonus program based on company net income, which the employees share equally. Lopez’s bonus expense is computed as $14,563.

1&2.

1

2

Prepare the journal entry at December 31 to record the bonus due and later January 19 to record payment of the bonus to employees.

Account Titles Date Dec. 31 Employee Bonus Expense Bonus Payable To record the bonus due the employees at December 31. Jan. 19 Bonus Payable Cash To record the payment of bonus to the

$

$

Debit 14,563

Credit $

14,563

$

14,563

14,563

EXERCISE 11 - 12

Listed below are a few transactions and events of Maxum Company. Prepare adjusting entries at December 31 for Maxum Company’s year-end financial statements for

1

Employees earn vacation pay at a rate of one day per month. Maxum estimated and must expense $13,000 of accrued vacation benefits for the year.

Account Titles Date Dec. 31 Vacation Benefots Expense Vacation Benefits Payable To record the related adjusting entry.

2

Debit $ 13,000

Credit $

13,000

During December, Maxum Company sold 12,000 units of a product that carries a 60-day warranty. December sales for this product total $460,000. The company expects 10% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $15. Account Titles Date Warraty Expense Dec. 31 Estimated Warranty Liability To record the related adjusting entry.

Debit $ 18,000

Warranty expense = 12,000 units × 10% × $15 = $18‚000.

Credit $

18,000...