Q28PGA - Horngren'S Financial And Managerial Accounting

Question

The following transactions of Jasmine Reef occurred during 2018:

 

Apr. 30 Reef is party to a patent infringement lawsuit of \(190,000. Reef’sattorney is certain it is remote that Reef will lose this lawsuit.

Jun. 30 Estimated warranty expense at 2% of sales of \)350,000.

Jul. 28 Warranty claims paid in the amount of \(5,500.

Sep. 30 Reef is party to a lawsuit for copyright violation of \)80,000. Reef’sattorney advises that it is probable Reef will lose this lawsuit. Theattorney estimates the loss at \(80,000.

Dec. 31 Reef estimated warranty expense on sales for the second half of the yearof \)510,000 at 2%.

 

Requirements

1. Journalize required transactions, if any, in Reef ’s general journal. Explanations arenot required.

 

2. What is the balance in Estimated Warranty Payable assuming a beginning balanceof $0?

Step-by-Step Solution

Answer

Warranty Payable balance at Dec 31:$11,700

Step1: Journal Entries

Date	Particular	Debit	Credit
June. 30	Warranty Expense (2% of $350,000)	$ 7,000
	Warranty Payable		$  7,000
	Being warranty accrued recorded
Jul. 28	Warranty Payable	5,500
	Cash		5,500
	Being warranty amount paid
Sep. 30	Lawsuit Expense	80,000
	Lawsuit Payable		80,000
	Being lawsuit expense probable
Dec 31	Warranty Expense (2% of $510,000)	10,200
	Warranty Payable		10,200
	Being warranty accrued recorded

Step 2: Computation of warranty payable balance

Date	Particular	Amount	Date	Particular	Amount
July 28	To Cash	$   5,500	June 30	By Warranty Expense	$  7,000
Dec 31	To Balance c/d	$ 11,700	Dec 31	By Warranty Expense	10,200
		$ 17,200			$ 17,200