Question

Question 1 -125 View Policies Current Attempt in Progress YellowCard Company manufactures accessories for iPods. It had the following selected transactions during 2012.Node For any part of this probiem requining an interest or discountrate, use ) 1. YellowCard provides a 2-year warranty on its docking stations, which it began selling in 2017. During 2017, Velowcard spent $3.10 ervicing warranty daims At vearend YelowCandetinates that an addtioral 532.730 wil be spent in the future to service warranties related to 2017 sales. 2. YellowCard has a $197.600 loan outstanding trom First Trust Corp. The loan is set to mature on February 28, 2018 For several years. First Trust has agreed to extend the loan as long as Yellacard makes al its arterv interest payments (interest is due on the last days of each February. May, August, and November) and maintains an acid test ratio (aho calel'qukk ratie ofaleast 125. First Trust has provided vellowCarda comniosent letter indicating that First Trust will extend the loan another 12 months. providing YellowCard makes the interest payment due on March 31 3. During 2016, YellowCard constructed a small manufacturing tacility speciically to manufacture one particular accessory Vellowcardpaid the construction contractor 54.755.000 cashlaidwa the total contract oricel and placed the facility into service on January 1. 2017. Because of technological change, YellowCard anticipates that the matfacturing facility will be usefultor no ore than 10 years The local governenent wheethetacltyslecated required that, at the end of the 10-year period, YellowCard remediate the faclity so that it can be used as a community center. YellowCardestintes the cost of remediation to be $373300 Prepare all 2017 journal entries relating to YellowCard's warranties (Credit account titles are automaticoly indented when the emount is entered Do net ndent manualy Date Account Titles and Explanation Debit Credit

YellowCard Company manufactures accessories for iPods. It had the following selected transactions during 2017. (Note: For any part of this problem requiring an interest or discount rate, use 9%.)

1. YellowCard provides a 2-year warranty on its docking stations, which it began selling in 2017. During 2017, YellowCard spent $5,160 servicing warranty claims. At year-end, YellowCard estimates that an additional $32,730 will be spent in the future to service warranties related to 2017 sales.

2. YellowCard has a $197,600 loan outstanding from First Trust Corp. The loan is set to mature on February 28, 2018. For several years, First Trust has agreed to extend the loan, as long as YellowCard makes all its quarterly interest payments (interest is due on the last days of each February, May, August, and November) and maintains an acid-test ratio (also called “quick ratio”) of at least 1.25. First Trust has provided YellowCard a “commitment letter” indicating that First Trust will extend the loan another 12 months, providing YellowCard makes the interest payment due on March 31.

3. During 2016, YellowCard constructed a small manufacturing facility specifically to manufacture one particular accessory. YellowCard paid the construction contractor $4,755,000 cash (which was the total contract price) and placed the facility into service on January 1, 2017. Because of technological change, YellowCard anticipates that the manufacturing facility will be useful for no more than 10 years. The local government where the facility is located required that, at the end of the 10-year period, YellowCard remediate the facility so that it can be used as a community center. YellowCard estimates the cost of remediation to be $373,300.

Answer 1

Journal entry relating to Yellow card's warranties Credit Date Account titles Year 2017 Warranty Expense Cash Debit $5,160 $5.160 $32.730 Warranty Expense Estimated Warranty Liability $32.730 Journal entries relating to yellow card's loan from First trust Corp:

Date Credit Account titles Feb. 28, 2017 Interest Expense ($4,446 x 2/3) Interest payable (S4,446 x 1/3) Cash ($197.600 x 9% x 3/12) Debit $2.964 $1.482 $4.446 $4,446 May 31, 2017 Interest Expense ($197.600 x 9% x 3/12) Cash $4,446 . $4,446 Aug. 31, 2017 Interest Expense Cash $4.446 $4.446 Nov. 30, 2017 Interest Expense Cash $4.446 $1,482 Dec 31, 2017 Interest Expense ($197.600 x 9% 1/12) Interest payable $1.482 Journal entries relating to the new manufacturing facility:

Account titles Credit Date Jan. 01, 2017 Plant Assets Cash Debit $4,755,000 $4,755,000 $157,685 Jan. 01. 2017 Plant Assets Asset Retirement Obligation (S373,300 x PVF(9%, 10) = $373,300 x 0.42241 $157,685 $4.912.685 Dec. 31, 2017 Depreciation Expense Accumulated Depreciation-Plant Assets ($4755000+$157685) x 10% $4.912.685 $14,191 Dec 31, 2017 Interest Expense Asset Retirement Obligation ($157,685 x 9%) $14.191