Question

Question 3 (20 marks)

a.Milton 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)

b.Milton 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 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 Milton 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)

Answer 1

DATE TITLAS DÉBITS CREDITS DR $ 48000 sepla|2.9 INVENTORY TO NOTES PAYAGLE (BEING THE INVENTORY PURCH SCD BY SIGHING The NTE PAYABLE) $4800D Dec | 31/2019 INTEREST EXPEND'S PICOUNT (NOTE) OR$ 960 TO INTEREST PAYABLE BEING THE ACCURED INTEREST FOR 4 MONTHS RAID RECORD 9960 MABL31/2021 NOTES PAYABLE INTEREST EXPENSE DR $ 48000 DR $966 INTEREST PAYABLE DR $960 $49929 TO CASH (BEING THE REMAINING 6 HONTA INTEREST IS PAID ALONG WITH NOTE ON MATURITY DATE) NOTES CALCULATING OF INTEREST PAYABLE $ 48000 *6*4 (INTEREST (MOIN DECEMBERI Too 12 = $960 . CALCULATING OF THE INTEREST EXPENSE FOR REMAINING MONTH $ 48000 * Top $ 960

DATE TITLES DEBIT S CREDITS ang WARR MOTY expense DR $ 1310 To CASH $ 1910 (BEING WWacanry Excense Paio) $340 $ 340 WARRANTY EXPENSE TO ESTIMATED WARRANTY LIABILITY (BEINY WARRANTY expense of 340$ Recorded ACLURING THE WARRANTY LIAGLITY ACCOUNT) NOTES CALCULATING THE AMOUNT OR ESTIMATED WARRANTY PAYABLE To Be REPORTED ON BALANCE SPEET = TOTAL ESTIMATED WARRANTY - TOTAL WARRANTY MID DURING THE YOU (185,00.) * 1% 51950 - 51510 $ 340