Question

Question 2 (20 marks) a. John 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 John 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) b. John 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)

Answer 1

Question no 2 a).

Journal entries:

For creating provision for warrenty repairs in 2019:

Profit & Loss A/c($185000×1%) Dr. $1850

To Provision for Warrenty Repairs A/c. $1850

(Being provision for Warrenty Repair are created.)

For incurred warrenty repair expense:

Provision for Warrenty Repairs A/c. Dr.$1510

To Repair Expenses A/c. $1510

(Being warrenty repairs incurred during the year.)

Estimated Warrenty payable by Jhon Electronic is $1850-$1510=$340 and finance this will be reported on Balance sheet on 31 December 2019.

Answer of question no 2b).

Journal entries

For purchase of inventory of $48000 at 6%note payable

Purchase A/c Dr. $48000

To 6% Note payable A/c. $48000

(Being inventory purchased for credit at 6%note payable)

For accrued Interest on 31 December 2019

Profit & Loss A/c. ($48000×6%×4/12) Dr. $960

To Interest Payable A/c. $960

(Being interest accrued are transferred to profit & loss account)

For final repayment of Note payable

6% Note payable A/c. Dr. $48000

Interest payable A/c.($48000×6%×8/12) Dr. $1920

To Cash/Bank A/c. $49920