Question

1. During 2017, Beever Co. introduced a new line of machines that carry a three-year warranty against manufacturer's defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 3% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows: See notebook: What amount should Beever report as a liability at December 31, 2017? Correct answer is $16,000. I would like to know how to calculate.

Year // Sales /// Actual Warranty Expense

2017 200,000 6,000

2018 1,600,000 23,000

2019 2,100,000 110,000

Total Sales: 3,900,000

Total Actual warranty expense: 139,000

2. Bees Knees Corp. signed a three-month, zero interest-bearing $ 263 000 note on November 1, 2019 for the purchase of $250,000 of inventory. If Bees Knees makes adjusting entries only at the end of the year, the adjusting entry made at December 31, 2019 will include a ________. Debit to interest expense $8667

3. Bees Knees Corp. signed a three-month, 10% note on November 1, 2019 for the purchase of $258,000 of inventory. If Bees Knees makes adjusting entries only at the end of the year, the adjusting entry made at December 31, 2019 will include a ________. (Do not round any intermediary calculations. Round your final answer to the nearest dollar.) debit to interest expense for $4309.

** Correct answers are provided on each questions. I just want to know to calculate. Thank you!

Answer 1

Sales in 2017 (A) Estimated Warranty Liability in the year of Sale (A*2%) Estimated Warranty Liability in the year after Sale (A*3%) Estimated Warranty Liability in the second year after Sale (A*6%) Total Warranty Liability Less Actual Warranty expense Beever should report as a Liability at Dec.31,2017 200000 4000 6000 12000 22000 -6000 16000

263000 250000 Par Value of the note Less Purchase price of the Inventory Amount of Discount This discount is to be written off in three installments (13000/3) Amount of interest expense at December 31,2019 (4333.33*2) 13000 4333 8667 As the note is zero interest bearing the entire discount is written off against interest expense Following Journal entry has to be passed 8667 Interest expense Discount on Notes Payable 8667

43 3) 44 Value of note (A) Rate of Interest (B) Amount of Interest for 2 months (A *B*2/12) 258000 10% 4300 49