Question

In: Accounting

The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in...

The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in July 2021. Classical’s fiscal year ends on December 31. Financial statements are issued in April 2022.

  1. Classical’s products carry a one-year warranty against manufacturer’s defects. Based on previous experience, warranty costs are expected to approximate 2% of sales. Sales were $3.3 million (all credit) for 2021. Actual warranty expenditures were $22,800 and were recorded as warranty expense when incurred.
  2. Although no customer accounts have been shown to be uncollectible, Classical estimates that 2% of credit sales will eventually prove uncollectible.
  3. In December 2021, the state of Tennessee filed suit against Classical, seeking penalties for violations of clean air laws. On January 23, 2022, Classical reached a settlement with state authorities to pay $2.8 million in penalties.
  4. Classical is the plaintiff in a $5.3 million lawsuit filed against a supplier. The suit is in final appeal and attorneys advise that it is virtually certain that Classical will win the case and be awarded $3.8 million.
  5. In November 2021, Classical became aware of a design flaw in an industrial saw that poses a potential electrical hazard. A product recall appears unavoidable. Such an action would likely cost the company $630,000.
  6. Classical offered $20 cash rebates on a new model of jigsaw. Customers must mail in a proof-of-purchase seal from the package plus the cash register receipt to receive the rebate. Experience suggests that 65% of the rebates will be claimed. Eleven thousand and three hundred of the jigsaws were sold in 2021. Total rebates to customers in 2021 were $118,000 and were recorded as promotional expense when paid.


Required:
1. Prepare the year-end entries for any amounts that should be recorded as a result of each of the above contingencies.

  • Record any necessary year-end entry related to the warranties.
  • Record any necessary year-end entry related to uncollectible accounts.
  • Record any necessary year-end entry related to clean air law violations.
  • Record any necessary year-end entry related to the lawsuit filed against a supplier.
  • Record any necessary year-end entry related to a product recall.
  • Record any necessary year-end entry related to rebates.

2. Indicate whether a disclosure note is needed for the above transactions.

EVENT 1   
EVENT 2
EVENT 3
EVENT 4
EVENT 5
EVENT 6

Solutions

Expert Solution



Related Solutions

The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in...
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in July 2021. Classical’s fiscal year ends on December 31. Financial statements are issued in April 2022. Classical’s products carry a one-year warranty against manufacturer’s defects. Based on previous experience, warranty costs are expected to approximate 3% of sales. Sales were $2.3 million (all credit) for 2021. Actual warranty expenditures were $20,100 and were recorded as warranty expense when incurred. Although no customer accounts have...
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in...
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in July 2021. Classical’s fiscal year ends on December 31. Financial statements are issued in April 2022. Classical’s products carry a one-year warranty against manufacturer’s defects. Based on previous experience, warranty costs are expected to approximate 3% of sales. Sales were $4.0 million (all credit) for 2021. Actual warranty expenditures were $48,200 and were recorded as warranty expense when incurred. Although no customer accounts have...
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in...
The following selected transactions relate to contingencies of Classical Tool Makers, Inc., which began operations in July 2021. Classical’s fiscal year ends on December 31. Financial statements are issued in April 2022. Classical’s products carry a one-year warranty against manufacturer’s defects. Based on previous experience, warranty costs are expected to approximate 4% of sales. Sales were $2.7 million (all credit) for 2021. Actual warranty expenditures were $43,500 and were recorded as warranty expense when incurred. Although no customer accounts have...
The following selected transactions relate to contingencies of Eastern Products Inc., which began operations in July...
The following selected transactions relate to contingencies of Eastern Products Inc., which began operations in July 2021. Eastern's fiscal year ends on December 31. Financial statements are published in April 2022. No customer accounts have been shown to be uncollectible as yet, but Eastern estimates that 3% of credit sales will eventually prove uncollectible. Sales were $300 million (all credit) for 2021. Eastern offers a one-year warranty against manufacturer's defects for all its products. Industry experience indicates that warranty costs...
Camden Biotechnology began operations in September 2016. The following selected transactions relate to liabilities of the...
Camden Biotechnology began operations in September 2016. The following selected transactions relate to liabilities of the company for September 2016 through March 2017. Camden’s fiscal year ends on December 31. Its financial statements are issued in April. 2016 a. On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $29,000,000 at the bank’s prime rate (9.5% at the time). The company will pay no commitment fees. b. On October 1,...
Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabilities of the...
Camden Biotechnology began operations in September 2021. The following selected transactions relate to liabilities of the company for September 2021 through March 2022. Camden’s fiscal year ends on December 31. Its financial statements are issued in April. 2021 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $25,000,000 at the bank's prime rate (9.5% at the time). The company will pay no commitment fees. On October 1, borrowed $22...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the company for September 2018 through March 2019. Camden’s fiscal year ends on December 31. Its financial statements are issued in April. 2018 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $15,000,000 at the bank's prime rate (10.5% at the time). The company will pay no commitment fees. On October 1, borrowed $12...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the company for September 2018 through March 2019. Camden’s fiscal year ends on December 31. Its financial statements are issued in April. 2018 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $23,000,000 at the bank’s prime rate (9.5% at the time). The company will pay no commitment fees. On October 1, borrowed $20...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the company for September 2018 through March 2019. Camden’s fiscal year ends on December 31. Its financial statements are issued in April. 2018 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $8,000,000 at the bank’s prime rate (9.5% at the time). The company will pay no commitment fees. On October 1, borrowed $5...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the...
Camden Biotechnology began operations in September 2018. The following selected transactions relate to liabilities of the company for September 2018 through March 2019. Camden’s fiscal year ends on December 31. Its financial statements are issued in April. 2018 On September 5, opened checking accounts at Second Commercial Bank and negotiated a short-term line of credit of up to $19,000,000 at the bank’s prime rate (12.5% at the time). The company will pay no commitment fees. On October 1, borrowed $16...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT