Question

(6 Marks, each 3 Question 1: marks) A- Presley Company sells a product that includes a one-year warranty on parts and labor. During the year, 10,000 units are sold. Presley expects that 3% of the units will be defective and that the average warranty cost will be S50 per unit. Actual warranty costs incurred during the year were $14,000. Instructions Prepare the journal entries to record (a) the estimated warranty costs and (b) the actual costs incurred. B- Golf World Publications publishes a golf magazine for women. The magazine sells for $3 a copy on the newsstand. Yearly subscriptions to the magazine cost S24 per year (12 issues). During December 2008 Golf World Publications sells 9,000 copies of the golf magazine at newsstands and receives payment for 15,000 subscriptions for 2009. Financial statements are prepared monthly. Instructions (a) Prepare the December 2008 journal entries to record the newsstand sales and subscriptions received. (b) Prepare the necessary adjusting entry on January 31, 2009. The January 2009 issue has been mailed to subscribers.

Answer 1

Answer

General Journal Answer A Warranty Expense (10,000 x 3% x $50) Estimated Warranty Liability DEBIT CREDIT $ 15,000 $ 15,000 warranty costs are incurred Estimated Warranty Liability Cash $ 14,000 $ 14,000 Answer B Cash (9000 x $3+$15,000 x $24) Sales Revenue $ 387,000 $ 27,000 Unearned Subscription Revenue 360,000 Unearned Subscription Revenue Subscription Revenue (revenue for January 360,000 x 1/12) $ 30,000 $ 30,000