4) On June 1, Taylor Merchandising purchases inventory for $150,000. The company has sales of $300,000 during the month of June and estimates that 7% of its product sales will require warranty repairs. All purchases and sales are subject to 13% HST. Journalize the following:
Inventory purchase (100% on account).
Sales for June (60% on account, 40% in cash).
Estimated dollars for warranties.
Paid cash claims of $11,300 out of cash on July 31.
5) Identify whether each of the below items would be a known, estimated, or contingent liability:
1. A manufacturing company offers a one-year warranty on their product.
2. A lawsuit has been filed against Voltage Energy, a private company, for polluting a creek in a local community. The amount is estimated at $125,000 and there is a 70%-95% likelihood of the obligation occurring.
3. ABC Co. purchased machinery for $125,000 paying $75,000 in cash and borrowing the remainder by signing a one-year 5% note payable.
6) Identify whether the following December 31, 2012 information from Jessica Industries would be a known, estimated, or contingent liability:
1. Salary expense for the last payroll for the year was$52,000. It is expected to be paid out January 2, 2013.
2. The company's December taxable sales were $253,000. Jessica Industries is required to collect HST (13%) on its sales which is to be remitted January 5, 2013.
3. Jessica Industries extends its customers a one-year warranty on its product sold. The rate of warranty repairs is 2% of sales.
4. The company had waste which polluted a nearby lake. The clean-up is likely to cost $325,000-$350,000.
5. Issued $100,000, 8%, five-year bond when the market rate of interest was 10%.