Question

Burke Company sold 5,000 widgets this month. The widgets have a warranty for free replacement. In the past, an average of 10% of widgets sold were eventually replaced under the warranty. The cost of producing a widget is $25. This month, 420 widgets were actually replaced under the warranty. The journal entry for the 420 units replaced under warranty in the current month would be:

		a. debit Inventory, $10,500; credit Estimated Warranty Liability, $10,500
		b. debit Estimated Warranty Liability, $10,500; credit Inventory, $10,500
		c. debit Inventory, $10,500; credit Warranty Expense, $10,500
		d. debit Warranty Expense, $10,500; credit Inventory, $10,500

Johnson Co. uses the production method to depreciate its manufacturing equipment. The equipment cost $120,000 and has an estimated useful life of 100,000 machine hours, with a $10,000 residual value. What would be the depreciation expense for the current period if the machine was used for 800 machine hours?

		a. $960
		b. $920
		c. $1,040
		d. $880

On January 1, Sonar Corporation issued 20-year bonds payable with a face value of $1,000,000 and a payment (face) rate of 8%, with interest payments made semiannually. At the time the bonds were issued, the market interest rate for bonds of similar risk was 10%, compounded semiannually. Which table, rate, and number of periods would be used to find the present value of the semiannual interest payments?

		a. PV Single, 5%, 40 periods
		b. PV Annuity, 5%, 20 periods
		c. PV Annuity, 10%, 20 periods
		d. PV Annuity, 5%, 40 periods

  The following Income Statement and account balance changes apply to this question:

Income Statement for the year:

Sales                                   $1,400,000

Cost of Goods Sold                 810,000

Gross Profit                            $590,000

Operating Expenses               360,000

Net Income before Taxes $230,000

Taxes                                             34,000

Net Income                              $196,000

Account Balance Changes during the year:

Accounts Payable increase                                  $6,000

Prepaid expenses decrease                                          $4,500

Taxes Payable increase                                                  $8,200

Accounts Receivable decrease                                    $24,000

Additions to Accumulated Depreciation                     $76,000

Inventory increase                                               $12,000

Accrued liabilities (e.g., Wages Payable) decrease        $5,000

What was the amount of cash payments for operating expenses this year, using the direct method?

		a. $283,500
		b. $284,500
		c. $274,500
		d. $293,500

Answer 1

Q1.

Answer is b. Debit Estimated warranty liabilities $10,500; Credit Inventory $ 10500

Explanation:

Number of parts replaced

420

Multiply: Cost per part replaced

25

Amount of warranty incurred

10500

For the amount, estimated liabilities created shall be reduced by debiting it and inventory balance shall be credited

Q2.

Answer is d. $ 880.

Explanation:

Cost of equipment

120000

Less: Salvage value

10000

Depreciable cost

110000

Divide: estimated hours

100000

Depreciation cost per hour

1.1

Multiply: Hours used

800

Depreciation expense

880

Q3.

Answer is d. PV annuity, 5%, 40 periods

Q4.

Answer is b. $ 284500

Operating expense recognized in Income statement

3,60,000

Less: Depreciation expenses

-76000

less: Decrease in Prepaid expense

-4,500

Add: Decrease in Accrued liabilities

5000

Cash paid for operating expenses

2,84,500