Question

Listed below are selected events transactions relating to Sage Hill, Inc. for the current year ending December 31.

Sage Hill manufactures laptop computers for sale in its own stores and for sale by other retailers.

1.		On December 1, Sage Hill accepted an order from a new customer, Buffalo Computers. Buffalo has a questionable credit history, so Sage Hill requires a $8,000 deposit from Buffalo in order to begin production on its order.
2.		During December, cash sales at Sage Hill’s retail locations totaled $3,424,000, which includes the 7% sales tax Sage Hill must remit to the state by the fifteenth day of the following month.
3.		During the year, Sage Hill was sued by a competitor for a patent violation. The competitor is claiming that Sage Hill’s liability is $2,050,000. Sage Hill’s attorneys have advised it that it is probable that the court will find for the company’s competitor. The attorneys estimate that the liability under the suit could be as little as $82,000 or as much as $410,000. The attorneys do not believe any amount within this range is a better estimate of Sage Hill’s liability than any other amount within the range.
4.		Sage Hill provides one-year warranties on the laptops it sells. During the year, Sage Hill’s laptop sales totaled $82,000,000. Historically, Sage Hill’s warranty liability has been one percent of total sales. Sage Hill began the year with a warranty liability balance of $660,000. Warranty expenditures during the year were $635,000 for computers sold in prior years and $197,000 for computers sold during the year. These expenditures were recorded as credits to cash and debits to the warranty liability account. Any remaining warranty liability is expected to relate to computers sold during the current year.

Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. For simplicity, assume that adjusting entries are recorded only once a year on December 31.

Answer 1

Answer:

S.No	Particulars	Debit ($)`	Credit ($)
1	Cash	8000
	Accounts Receivable		8000
	(To record advance received from customer)
2	Cash
	Sales revenue	3663380	3424000
	Sales Tax Payable		239680
	(To record cash sales 3424000*7% = 239680)
3.	No Entry	0	0
4.	Warranty Expense	820000
	Warranty Liability		820000
	(To Purchase office supplies)