Question

Question 3 (20 marks) 2 a. Milton Electronics Inc. purchased inventory costing $56,000 by signing an 6-month, 5% 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 $180,000 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 $1,250 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

Page : DIY: Answer Page 1 Dr $ 56000 Journal Entries Date particulars Sept. 1 Purchase Al Dr. 2019 To 5% Note Payable Being purchased inventory costing $56000 & a corresponding 5% Note payable signed) 56000 933.33 2019 933.33 Dec. 31 Interest Expense Ale Dr. To Interest Payable TO To record accrned interest for 4 months [ $56000x 5 %*+/21) 466.67 2020 933.33 56000 57400 Feb.29_Interest Expesse. Ale Dr Interest Payable Alc. Dr Notes Payable Ale Dr To cash (calculated the remaining 2 months interest [5600085%x² / 2] and Repaid the note payable along with interest) *It is assumed that the 5% interest payable on Note 1 layable is for 1 year. The calculations vorked dingly accor → calculation of Interest till Dec 31, 2019 = $ 56000 x 5%X4 4/12 = $_933,33 → calculation of Interest from 1st Jan 2020 till Feb, 29 20 ie, till maturity. $ 56000 x 5% x 212 = $ 466.67

Page 2 b. Date (2019) $ Cr $ 1800.00 Journal Entries Particulars Cash Alc. Dr To sales Alc worth $ 180000 and assumed that sales are for cash) 180000 Being sold goods 1250 1250 Warranty Expense Ale Dr To cash Ak Being paid warranty expense of $ 1250 current year) 550 550 Warranty Expense Ale Dr To Warranty Liability Ale Being Warranty expense of $550. recorded by accruing the Warranty liability Account) calculation of Warranty payable to be reported on the balance sheet Dec. 31, 2019 on Total o e. er estimated Warranty cost for the year = $ 180000* 1 % = 1800 Total Warranty expense paid during the year = 1250 Estimated Warranty payable Reported on the Balance sheet Total estimated warran ranty cost - Total warranty expense paid during the year = $1800 - $1250 = $ 550