Chapter 10 – Liabilities: Current, Installment Notes, and Contingencies
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Page 81
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
181. Kelly Howard has the following transactions. Prepare the journal entries.
Dec. 31
The accrued product warranty expense for the year is estimated to be 2.3% of sales. Sales for the
year totaled $6,005,000.
31
The accrued vacation pay for the year is estimated to be $75,225.
31
Paid Reliable Insurance Co. $275,000 as fund trustee for the pension plan. The annual pension
cost is $350,000.
ANSWER:
Dec. 31
Product Warranty Expense
138,115
Product Warranty Payable
138,115*
*$6,005,000 × 2.3% =
$138,115
31
Vacation Pay Expense
75,225
Vacation Pay Payable
75,225
31
Pension Expense
350,000
Cash
275,000
Unfunded Pension Liability
75,000
POINTS:
1
DIFFICULTY:
Bloom’s: Applying
Moderate
QUESTION TYPE:
Subjective Short Answer
HAS VARIABLES:
False
LEARNING OBJECTIVES:
FNMN.WAJO.19.10-03 – LO: 10–03
FNMN.WAJO.19.10-05 – LO: 10–05
ACCREDITING STANDARDS:
ACCT.ACBSP.APC.14 – Payroll/Other Compensation
ACCT.ACBSP.APC.16 – Current Liabilities Reporting
ACCT.AICPA.FN.03 – Measurement
BUSPROG: Analytic
DATE CREATED:
7/22/2017 6:27 PM
DATE MODIFIED:
10/16/2017 5:43 PM
182. Nelson Industries warrants its products for one year. The estimated product warranty is 4.3% of sales. Sales were
$475,000 for September. In October, a customer received warranty repairs requiring $215 of parts and $65 of labor.
(a)
Journalize the adjusting entry required at September 30, the end of the first month of
the current year, to record the estimated product warranty expense.
(b)
Journalize the entry to record the warranty work provided in October.
ANSWER:
(a)
Product Warranty Expense
20,425
Product Warranty Payable
20,425
