Question

10A-3. GLOBAL supermarkets of Bunol, Spain runs a special on tomatoes during the annual La Tomatina festival. They also run a money-back guarantee for anyone with unused tomatoes who is not completely satisfied with their aerodynamic qualities. From past history, GLOBAL knows tha only 1.5% of the tomatoes will be returned. This year they sell 400,000 kilograms of tomato es at a price of 0.40 euros per kilo. Required: 1. Show the adjusting T-account entry necessary to record the liability created by the money-back guarantee. 2. Show the entry that GLOBAL will have to make when a soggy-but-happy customer returns a kilo of tomatoes sometime after the adjusting entry in requirement 1 is made.

Answer 1

Cro Dr. Guarantee Exponses Account Amount (€) To Guarantee liability | 2,400 (400.000 x1,5%*0.40 ! Amount (€) Income statement 2,400 Il Gugrantee liability Account Cri Amount ( Pronount (€) By Guarantee Experies 2,400.00 0.40 2,399.60 OD To Cash To Balonce eld I I... 12400.00 12,400.00 Dr. oo|laldera de Cash Account Amount.( boolean - By Courontée liability Amount (€) 0.40