Question

Accrued Product Warranty

Parker Manufacturing Co. warrants its products for one year. The estimated product warranty is 5% of sales. Assume that sales were $346,000 for January. In February, a customer received warranty repairs requiring $305 of parts and $90 of labor.

For a compound transaction, if an amount box does not require an entry, leave it blank.

a. Journalize the adjusting entry required at January 31, the end of the first month of the current fiscal year, to record the accrued product warranty.

b. Journalize the entry to record the warranty work provided in February.

2.

Quick Ratio

Gmeiner Co. had the following current assets and liabilities on December 31 of two recent years:

				Current Year		Previous Year
Current assets:
	Cash			$652,000		$942,000
	Accounts receivable			578,000		444,000
	Inventory			357,000		374,000
		Total current assets		$1,587,000		$1,760,000
Current liabilities:
	Current portion of long-term debt			$131,000		$116,000
	Accounts payable			262,000		231,000
	Accrued and other current liabilities			427,000		423,000
		Total current liabilities		$820,000		$770,000

a. Determine the quick ratio for December 31 of both years. If required, round your answers to one decimal place.

	Quick Ratio
Previous year:
Current year:

b. How did the quick ratio change between the two balance sheet dates?

Answer 1

1
	a	Warranty Expense		dr	17300
		To Accrued Warrant liability				17300
	b	Accrued Warranty liability			395
		To Spare Parts				305
		To Labor				90
2	a	Quick Ratio	=	Current Assets-Inventory/Current Liabilities
		CY	=	1587000-357000	1.5
				820000
		PY	=	1760000-374000	1.8
				770000
	b	Quick Ratio has decreased in the current year as both cash and accounts receivable has decreased and total current liabilities has increased