Question

Listed below are selected events transactions relating to Larkspur, Inc. for the current year ending December 31.

Larkspur manufactures laptop computers for sale in its own stores and for sale by other retailers.

1.		On December 1, Larkspur accepted an order from a new customer, Pearl Computers. Pearl has a questionable credit history, so Larkspur requires a $10,000 deposit from Pearl in order to begin production on its order.
2.		During December, cash sales at Larkspur’s retail locations totaled $4,066,000, which includes the 7% sales tax Larkspur must remit to the state by the fifteenth day of the following month.
3.		During the year, Larkspur was sued by a competitor for a patent violation. The competitor is claiming that Larkspur’s liability is $2,450,000. Larkspur’s attorneys have advised it that it is probable that the court will find for the company’s competitor. The attorneys estimate that the liability under the suit could be as little as $98,000 or as much as $490,000. The attorneys do not believe any amount within this range is a better estimate of Larkspur’s liability than any other amount within the range.
4.		Larkspur provides one-year warranties on the laptops it sells. During the year, Larkspur’s laptop sales totaled $98,000,000. Historically, Larkspur’s warranty liability has been one percent of total sales. Larkspur began the year with a warranty liability balance of $780,000. Warranty expenditures during the year were $760,000 for computers sold in prior years and $235,000 for computers sold during the year. These expenditures were recorded as credits to cash and debits to the warranty liability account. Any remaining warranty liability is expected to relate to computers sold during the current year.

Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. For simplicity, assume that adjusting entries are recorded only once a year on December 31. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No.	Date	Account Titles and Explanation	Debit	Credit
1.	choose a transaction date Dec. 1Dec. 1-31Dec. 31	enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
2.	choose a transaction date Dec. 1Dec. 1-31Dec. 31	enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
3.	choose a transaction date Dec. 1Dec. 1-31Dec. 31	enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount
4.	choose a transaction date Dec. 1Dec. 1-31Dec. 31	enter an account title	enter a debit amount	enter a credit amount
		enter an account title	enter a debit amount	enter a credit amount

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Answer 1

Larkspur, Inc.
Journal
Sr. No.	Date	Account Titles & Explanations	Debit ($)	Credit ($)
1	Dec. 1	Cash A/c                                             Dr.	10,000
		To Deposit From Customer A/c		10,000
		(Being deposit taken from Pearl computers in order to begin production on its order)
2	Dec.	Cash A/c                                            Dr.	40,66,000
		To Sales A/c		37,81,380
		To Sales tax payable A/c		2,84,620
		( Being Cash Sales recorded)
3	Dec.	No Entry	0
		(No Entry required Because amount is not Certain)		0
4	Dec.	Warranty expenses A/c                Dr.	9,80,000
		To Warranty Liability A/c		9,80,000
		( Being Warranty liablity of 1% on Total sales is provided in books)
5	Dec.	Warranty Liability A/c                  Dr.	9,95,000
		To Cash A/c		9,95,000
		( Being Warranty Expenses for Current Year recorded)
6	Dec. 31	Sales A/c                                          Dr.	37,81,380
		To Profit & Loss A/c		37,81,380
		( Being Adjustment entry for transfer to P&L A/c)
7	Dec. 31	Profit & Loss A/c                           Dr.	9,80,000
		To Warranty Expenses A/c		9,80,000
		( Being Adjustment entry for transfer to P&L A/c)