Question

a.   John Electronics Inc. started its business in 2019 and sold electronics worth $185,000 in 2019. The company provided a 2- year limited warranty for all sales. As per the company estimate warranty costs would be 1% of sales in the first year and 3% of sales in the second year. By end of 2019, John Electronics Inc had already spent $1,510 on warranty repairs. Prepare all journal entries related to the warranty for 2019. Also Calculate the amount of Estimated Warranty Payable to be reported on the Balance Sheet on Dec 31, 2019 (10 marks)

b.   John Electronics Inc. purchased inventory costing $48,000 by signing an 8-month, 6% note payable on Sept 1 2019. The note will be repaid with interest at maturity. Prepare journal entries to record the purchase of the inventory, accrual of interest on Dec 31, 2019, and the final repayment of the note at maturity. (10 marks)

Answer 1

Answer :

a) journal entries relating bto the warranty for 2019 :

Sales in 2019 = $185,000

estimated warranty cost in 2019 = $185000 × 1% = $1850

Amount already spent = $1510

Therefore,

General journal for 2019

Date	Account title	Debit	Credit
2019	warranty expense	$1,850
	Estimated Warranty liability		$1,850
2019	Warranty expense	$1,510
	Cash		$1,510

Estimated Warranty payable for 2019 = $1,850 - $1,510

= $340

b)

Date	Account titles	Debit	Credit
Sep 1, 2019	Inventory	$48,000
	Notes payable		$48,000
Dec 31, 2019	Interest expense	$960
	Interest payable ($48,000 × 6% × 4/12)		$960
Apr 30, 2020	Notes payable	$48,000
	Interest expense	$960
	Interest payable	$960
	Cash		$49,920