Question

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

a.

Date	Particulars	DR. AMOUNT	CR. AMOUNT
2019 Sept 1	Purchase A/c Dr. To Notes payables A/c (being inventory purchased)	48000	48000
Dec 31	Interest A/c Dr. Accrued interest payable A/c (being accrued interest recorded)	960	960
2020 April 30	Notes payables A/c Dr. Interest A/c Dr. Accrued interest payable A/c Dr. To Bank A/c (being payment made)	48000 960 960	49920

NOTE: Assuming 6% p.a. rate

b. Sales in 2019 = 185,000

estimated warranty cost in 2019 = 1% of 185000 = 1850

Amount already spent =1510

Date	Particulars	DR. AMOUNT	CR. AMOUNT
2019	Warranty A/c Dr. Warranty Liability A/c (Being liability created)	1850	1850
	Warranty Liability A/c To Inventory A/c (Being warranty claimed)	1510	1510

Estimated warranty payable on 31 Dec 2019 = 1850-1510=340