Ex. 33
Sandra Sikes sells exercise machines for home use. The machines carry a 2-year warranty. Past experience indicates that 5% of the units sold will be returned during the warranty period for repairs. The average cost of repairs under warranty is $40 for labor and $50 for parts per unit. During 2014, 3,000 exercise machines were sold at an average price of $800. During the year, 95 of the machines that were sold were repaired at the average price per unit.
Instructions
(a)Prepare the journal entry to record the repairs made under warranty.
(b)Prepare the journal entry to record the warranty expense for the year.
Ex. 34
Roberts Company is preparing monthly adjusting entries at December 31. An analysis reveals the following:
1.During December, Roberts Company sold 3,000 units of a product that carries a 60-day warranty. The sales for this product totaled $100,000. The company expects 4% of the units to need repair under the warranty and it estimates that the average repair cost per unit will be $25.
2.The company has been sued by a disgruntled employee. Legal counsel believes that it is possible that the company will have to pay $200,000 in damages.
3.The company has been named as one of several defendants in a $400,000 damage suit. Legal counsel believes it is unlikely that the company will have to pay any damages.
4.Employees earn vacation pay at a rate of 1 day per month. During December, ten employees qualify for vacation pay. Their average daily wage is $80 per employee.
Instructions
Prepare adjusting entries, if required, for each of the four items.