Question

Question 3 (20 marks)

1. Milton Electronics Inc. purchased inventory costing $48,000 by signing a 6-month, 6% note payable on Oct 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)
2. Milton Electronics Inc. started its business in 2019 and sold electronics worth $140,000 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 2% of sales in the second year. By end of 2019 Milton Electronics Inc had already spent $1,050 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

a.

Date	Account Titles	Debit	Credit
1-Oct	Inventory	$        48,000
2019	Notes Payable		$        48,000
31-Dec	Interest Expense	$             720
2019	Interest Payable		$             720
1-Apr	Notes Payable	$        48,000
2019	Interest Expense	$             720
	Interest Payable	$             720
	Cash		$        49,440

b.

Date	Account Titles	Debit	Credit
31-Dec	Warranty Expense	$          1,050
2019	Cash		$          1,050
	Warranty Expense	$          3,150
	Estimated Warranty Liability		$          3,150

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