Question

Listed below are selected events transactions relating to Tamarisk, Inc. for the current year ending December 31. Tamarisk manufactures laptop computers for sale in its own stores and for sale by other retailers. On December 1, Tamarisk accepted an order from a new customer, Pearl Computers. Pearl has a questionable credit history, so Tamarisk requires a $11,000 deposit from Pearl in order to begin production on its 1. order. 2. During December, cash sales at Tamarisk's retail locations totaled $4,708,000, which includes the 7% sales tax Tamarisk must remit to the state by the fifteenth day of the following month. 3. During the year, Tamarisk was sued by a competitor for a patent violation. The competitor is claiming that Tamarisk's liability is $2,850,000. Tamarisk's attorneys have advised it that it is probable that the court will find for the company's competitor. The attorneys estimate that the liability under the suit could be as little as $114,000 or as much as $570,000. The attorneys do not believe any amount within this range is a better estimate of Tamarisk's liability than any other amount within the range. Tamarisk provides one-year warranties on the laptops it sells. During the year, Tamarisk's laptop sales totaled $114,000,000. Historically, Tamarisk's warranty liability has been one percent of total sales. Tamarisk began the year with a warranty liability balance of $910,000. Warranty expenditures during the year were $885,000 for computers sold in prior years and $274,000 for computers sold during the year. These expenditures were recorded as credits to cash and debits to the warranty liability account. Any remaining warranty liability is expected to relate to computers sold during the current year. 4. Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. For simplicity, assume that adjusting entries are recorded only once a year on December 31. (If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

Answer 1

Solution

1. Cash $11000

To Due to Customer or advance $110000

2. Cash 4708000

To Sales Revenue 4400000

To Sales Tax Payable 308000 ( inclusive amount , You have to subtract it from the amount )( Consider sales @ 107%)

( Being entry passed for recording cash sales)

4. Warranty Expenses 274000

To warranty Liability 274000

(Warranty expense is recognized in the same year when the products were sold, hence last years warranty expenses wont be included)