Prepare any necessary adjusting entries at December 31, 2009, for Madison Compan
ID: 2355028 • Letter: P
Question
Prepare any necessary adjusting entries at December 31, 2009, for Madison Company's year-end financial statements for each of the following separate transactions and events.1.
During December, Madison Company sold 4,800 units of a product that carries a 60-day warranty. December sales for this product total $192,000. The company expects 9% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $14.
2.
A disgruntled employee is suing Madison Company. Legal advisers believe that the company will probably need to pay damages, but the amount cannot be reasonably estimated.
3.
Employees earn vacation pay at a rate of one day per month. During December, 28 employees qualify for one vacation day each. Their average daily wage is $70 per employee.
4.
Madison Company guarantees the $8,000 debt of a supplier. The supplier will probably not default on the debt.
5.
Madison Company records an adjusting entry for $320,000 of previously unrecorded cash sales (costing $160,000) and its sales taxes at a rate of 4%.
6.
The company earned $64,000 of $160,000 previously received in advance for services
Explanation / Answer
similar problem : Prepare any necessary adjusting entries at December 31, 2009 for Madison Company's year-end financial statements for each of the following separate transactions and events. 1. During December, Madison Company sold 4100 units of a product that carries a 60-day warranty. December sales for this product total $164,000. The company expects 6% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $14. 2. A disgruntled employee is suing Madison Company. Legal advisers believe that the company will probably need to pay damages, but the amount cannot be reasonably estimated. 3. Employees earn vacation pay at a rate of one day per month. During December, 28 employees qualify for one vacation day each. Their average daily wage is $105 per employee. 4. Madison Company guarantees the $13,000 debt of a supplier. The supplier will probably not default on the debt. 5. Madison Company records an adjusting entry for $520,000 of previously unrecorded cash sales (costing $260,000) and its sales taxes at a rate of 7%. 6. The company earned $104,000 of $260,000 previously received in advance for services. answer : 1. During December, Madison Company sold 4100 units of a product that carries a 60-day warranty. December sales for this product total $164,000. The company expects 6% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $14. Dr Warranty expense $3,444 Cr Provision for warranties $3,444 2. A disgruntled employee is suing Madison Company. Legal advisers believe that the company will probably need to pay damages, but the amount cannot be reasonably estimated. This is a contingent liability which cannot be quantified. Since it is probable that the company will need to pay, the fact that the company has been sued and the circumstances must be disclosed in the notes. 3. Employees earn vacation pay at a rate of one day per month. During December, 28 employees qualify for one vacation day each. Their average daily wage is $105 per employee. Dr Vacation & Holiday Expense (or equivalent term) $2,940 Cr Vacation & Holiday Payable $2,940 4. Madison Company guarantees the $13,000 debt of a supplier. The supplier will probably not default on the debt. Since the likelihood is remote or slight that the loss will be realised, my view is that disclosure is not even required. 5. Madison Company records an adjusting entry for $520,000 of previously unrecorded cash sales (costing $260,000) and its sales taxes at a rate of 7%. Dr Cash $556,400 Cr Sales $520,000 Cr Sales tax payable $36,400 (I'm assuming this omission was discovered in the same accounting period) Dr COGS $260,000 Cr Merchandise inventory $260,000 6. The company earned $104,000 of $260,000 previously received in advance for services. Dr Unearned revenue $104,000 Cr Services revenue $104,000