36) In 2017, Johnson's Cycles Inc. sold 5,000 mountain bikes. For the first time, Johnson offered an in-store, no-charge, two-year warranty on each bike sold. Company management estimates that the average cost of providing the warranty is $8 per unit in the first year of coverage and $11 per unit in the second year.
Johnson's warranty-related expenditures totaled $36,500 for labor costs during 2017.
Requirements:
a. Prepare the summary journal entry to recognize Johnson's warranty expense in 2017.
b. Prepare the summary journal entry to recognize the warranty service provided in 2017.
c. Determine the total provision for warranty obligations that will be reported on the company's balance sheet at year-end. Assuming that all sales transactions and warranty service took place on the last day of the year, how much of the warranty obligation will be classified as a current liability? As a non-current liability?
37) On May I, 2016, British Columbia Brew Supplies Inc. borrowed USS 180,000 from its bank. British Columbia's year-end is December 31, 2016. Exchange rates were as follows:
May 1, 2016US$1.00 = C$1.05
Dec 31, 2016US$1.00 = C$1.07
Average rate May 1-Dec 31, 2016US$1.00 = C$1.06
Requirement:
Prepare the required journal entries to record receipt of the loan proceeds and for any adjustments required at year-end.
38) On January 1, 2014 BCL Transmission Services Co. issued a $40,000, non-interest bearing note, due on January 1, 2015, in exchange for a custom-built computer system. The fair value of the computer system is not easily determinable. The market rate of interest for similar transactions is 4%. BCL's year-end is December 31.
Requirements:
a. Prepare the journal entry to record the issuance of the note payable.
b. Prepare the journal entry to record the accrual of interest at December 31, 2014, assuming that BCL prepares adjusting entries only at year-end.
c. Prepare the journal entry to record the retirement of the note payable on January 1, 2015.