Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 11: Q11SE (page 606)

Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail Runner dealer in Colorado Springs made sales totaling \(600,000 during 2018. The company received cash for 20% of the sales and notes receivable forthe remainder. Warranty payments totaled \)10,000 during 2018.

Requirements

Record the sales, warranty expense, and warranty payments for the company.

Ignore cost of goods sold.

Short Answer

Expert verified

Answer

Date

Accounts and Explanation

Debit

Credit

Cash

Accounts receivable

Sales revenue

(To record sales)

$ 120,000

$480,000

$600,000

Warranty expense

Warranty payable

(To record warranty liability)

$30,000

$30,000

Warranty payable

Cash

(To record warranty related expenses)

$10,000

$10,000

Step by step solution

01

Step-by-step solution

Step 1:Meaning of Accounts receivable, Warranty expense.

Accounts receivable (AR) is the balance of money due to a firm for goods or services delivered or used but not yet paid for by customers.

Warranty expense is the cost that a business expects to or has already incurred for the repair or replacement of goods that it has sold.

02

Calculation for Cash received and Accounts receivable

CashReceived=Sales×20%ofSales=$6,00,000×20100=$1,20,000Accountsreceivable=Sales×80%ofsales=$6,00,000×80100=$4,80,000

03

Explanation of the journal entry

  • To record sales, Cash is debited by $ 120,000, Accounts receivable is debited $ 480,000 and Sales revenue is credited by $ 600,000.
  • To record warranty liability, Warranty expense is debited and Warranty payable is credited with an amount of $ 30,000.
  • To record warranty related expenses, Warranty payable is debited and Cash is credited with an amount of $ 10,000.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

What are the three main characteristics of liabilities?

Lucy Rose works at College of Fort Worth and is paid $12 per hour for a 40-hour workweek and time-and-a-half for hours above 40.

Requirements

1. Compute Rose’s gross pay for working 60 hours during the first week of February.

2. Rose is single, and her income tax withholding is 15% of total pay. Rose’s only payroll deductions are payroll taxes. Compute Rose’s net (take-home) pay for the week. Assume Rose’s earnings to date are less than the OASDI limit.

3. Journalize the accrual of wages expense and the payment related to the employment of Lucy Rose.

Recording employer payroll taxes and employee benefits Ricardo’s Mexican Restaurant incurred salaries expense of \(62,000 for 2018. The payroll expense includes employer FICA tax, in addition to state unemployment tax and federal unemployment tax. Of the total salaries, \)22,000 is subject to unemployment tax. Also, the company provides the following benefits for employees: health insurance (cost to the company, \(3,000), life insurance (cost to the company, \)330), and retirement benefits (cost to the company, 10% of salaries expense).

Requirements

  1. Journalize Ricardo’s expenses for employee benefits and for payroll taxes. Explanations are not required.
  2. What was Ricardo’s total expense for 2018 related to payroll?

On January 1, Irving Company purchased equipment of \(280,000 with a long-term note payable. The debt is payable in annual installments of \)56,000 due on December 31 of each year. At the date of purchase, how will Irving Company report the note payable?

List the required employee payroll withholding deductions, and provide the tax rate for each.
See all solutions

Recommended explanations on Business Studies Textbooks

Influences On Business

Read Explanation

Operational Management

Read Explanation

Nature of Business

Read Explanation

Business Case Studies

Read Explanation

Managers

Read Explanation

Organizational Communication

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free