Question

The homework assignment this week requires you to prepare various journal entries for a series of transactions involving sales transactions, estimations for bad debts expense, and estimated warranty obligations. Remember – the only way to lose points is to leave something blank. Take your best shot even if you are NOT really sure. The Professor sold rubber life rafts with a full cash refund if they sunk within a year after the purchase. During the first year 300 rafts were sold on credit for $400 each. The cost of each raft to the Professor was $250. A. Prepare the entry to record the sale and the entry to record cost of goods sold for the above transactions. Account Debit Credit B. The Professor calculated that 2% of all sales would eventually be uncollectible. Prepare the entry to record bad debts expense. Account Debit Credit C. Based on his extensive research developing the rafts, he estimated 5% of all rafts would be returned for a full cash refund. Account Debit Credit D. During the year, the Professor wrote off $2,200 for delinquent accounts receivable. Account Debit Credit E. During the year, 12 rafts were returned for a full cash refund. Account Debit Credit F. What is the balance of the Allowance for Bad Debts at the end of the year? ____________ G. What is the balance of the Customer Refunds Payable at the end of the year?___________ Ginger sold clothing with a guarantee that Mary Ann would mend any rips or tears within 6 months after the purchase. Sales for the first year totaled $40,000 for clothes costing her $12,000. H. Prepare the entry to record the sale and the entry to record cost of goods sold for the above transactions. Account Debit Credit I. Ginger’s best guess is that the total cost for repairing items returned would amount to 2% of total clothing sales. Prepare the entry to record warranty expense. Account Debit Credit J. During the year, knitting supplies with a total cost of $750 were used to repair clothes brought back by customers. Account Debit Credit K. What is the balance of the Warranty Payable at the end of the year?___________ At the beginning of the second year, the Professor revised his policy to replace defective rubber life rafts with a new raft if the first one sunk within a year after the purchase (instead of the full cash refund). During the second year 500 rafts were sold on credit for $500 each. The cost of each raft to the Professor was $300. L. Prepare the entry to record the sale and the entry to record cost of goods sold for the above transactions. Account Debit Credit M. Prepare the entry to record warranty expense if he still expects 5% of the rafts to be returned for replacement. Account Debit Credit N. During the second year a total of 20 rafts were returned for replacement. Prepare the journal entry to record this transaction. Account Debit Credit O. What is the balance of the Warranty Payable at the end of the year?___________ “Following” a stock: All the information you will be requested to provide will be available by going to www.yahoo.com/finance and keying in the appropriate stock symbol in the search box at the top of the page. Once you hit “search” you will be on the “Summary” page of the stock. Feel free to explore this page and review all the information that is freely provided to all investors. Round about the middle of the page, you will see blue wording that indicates different ‘tabs’ (pages) where various statistical and financial information can be found. Since this is the last assignment it is a good time to see how your stock has performed since your “purchased” it at the beginning of the semester. You will need to take your “purchase” price and compare it to the current market price to determine what percentage gain or loss your investment has provided you. If you don’t remember what you “purchased” your stock for consult your assignment for Week 1. Company Name: Hewlett Packard Inc. (your) Company Name: Stock Symbol: HPQ Stock Symbol: Stock Price per share Stock Price per share (your company) Current balance 21.31 Beginning balance (from HW1) 18.51 Gain or (loss) 2.80 Divide the gain (loss) by Beginning balance x 100 15.31% 2.80 / 18.51 = 0.1531 x 100 = 15.31%

Answer 1

Journal entries - Professor (Year 1)

S. No.	Account Name	Debit	Credit
A.	Accounts Receivable A/c Dr.                           Revenue A/c	$ 120,000	. . $ 120,000
A.	Cost of Goods Sold A/c Dr.                           Inventory A/c	$ 75,000	. . $ 75,000
B.	Bad Debts Expense A/c Dr.                           Allowance for Bad Debts	$ 2,400	. . $ 2,400
C.	Warranty Expense A/c Dr.                            Accrued warranty Liablility	$ 6,000	. . $ 6,000
D.	Allowance for Bad Debts A/c Dr.                             Accounts Receivable A/c	$ 2,200	. . $ 2,200
E.	Accrued warranty Liablility A/c Dr.                            Cash A/c	$ 4,800	. . $ 4,800

F. Balance for Allowance for Bad Debts at Year End = $ 200

G. Balance for Customer Refund payable at Year End = $ 1200

Journal entries - Ginger

S. No.	Account Name	Debit	Credit
H.	Accounts Receivable A/c Dr.                           Revenue A/c	$ 40,000	. . $ 40,000
H.	Cost of Goods Sold A/c Dr.                           Inventory A/c	$ 12,000	. . $ 12,000
I.	Warranty Expense A/c Dr.                            Accrued warranty Liablility	$ 800	. . $ 800
J.	Accrued warranty Liablility A/c Dr.                            Cash A/c	$ 750	. . $ 750

K. Balance for Warranty payable at Year End = $ 50

Journal entries - Professor (Year 2)

S. No.	Account Name	Debit	Credit
L.	Accounts Receivable A/c Dr.                           Revenue A/c	$ 250,000	. . $ 250,000
L.	Cost of Goods Sold A/c Dr.                           Inventory A/c	$ 150,000	. . $ 150,000
M.	Warranty Expense A/c Dr.                            Accrued warranty Liablility (Calculation = {500 rafts x 5%} x $ 300)	$ 7,500	. . $ 7,500
N.	Accrued warranty Liablility A/c Dr.                            Inventory A/c	$ 6,000	. . $ 6,000

O. Balance for Warranty payable at Year End = $ 1,500