Question

what will be the journal entries for the following transactions - i. Sydney Cycle Ltd’s management are becoming increasingly aware that their segment of cycling market is dependent on the technical innovation of their frames. As result they have begun to undertake a more formalised approach to ‘research and development’. During the month they have spent $25,000 cash investigating the incorporation of a variety of new alloys into their frames. Unfortunately, these alloys have provided no real benefit to their products, and as a result management will commit future funds to research into a range of composite materials;.. management requires the Allowance for Doubtful Debts to have a balance of $360,000 s. The management of Sydney Cycles Ltd has noted that the current book value of their plant and equipment is slightly below its current market price. As a consequence, the firm’s management is unsure as the whether they should revalue the plant and equipment upward by an additional $5,000; v. Each year during January, the firm’s management declares a dividend. The total dividend declared during January 2018 is $200,000 to be shared across all shareholders. The dividend will be paid on March the 31st, 2018; w. Sales for January included several new products. Importantly these new offerings include the release of a quite technically advanced carbon-fibre racing frame. As a consequence of the innovative nature of the new frame management have offered a 12-month warranty with each of the new units sold. Given the sales of the new frame they estimate the potential cost of replacing any frame that proves faulty will be $15,000;

Answer 1

In the books of Sydney Cycle Ltd

Journal      Dr Cr   

Date	Particulars	L.F	$	$
	Bad Debt A/C...............Dr		360000
	To Allowance For Doubtful Debts A/c			360000
	(Maintaining $360000 in Allowance For Doubtful Debts A/C)
	Plants & Machinery A/C..................Dr		5000

-	To Revaluation Suplus A/c			5000
	(Being Upward Revaluation of Asset)
Jan 2018	Retained Earnings A/C..........Dr		200000
	To Dividends Payable			200000
	(Being dividend declared by the company)
31st March 2018	Dividends Payable...,,,,,Dr		200000
	To Cash A/C			200000
	(Being the Dividend paid declared in Jan 2018)

	Warranty Expense A/C .......Dr		15000
	To Warranty Cost Liability			15000
	(Being warranty expense for the given sales of new frame)
	GRAND TOTAL		780000	780000

Note: Cash $25000 spent for investigating incorporation of new alloys frame falls under "Research And Development' Cost.Research And Development Cost are an expense;therefore,those costs cannot be amortized.