On January 1, 2018, the general ledger of ACME Fireworks includes the following
ID: 2396860 • Letter: O
Question
On January 1, 2018, the general ledger of ACME Fireworks includes the following account balances:
During January 2018, the following transactions occur:
The following information is available on January 31, 2018.
Depreciation on the equipment for the month of January is calculated using the straight-line method. At the time the equipment was purchased, the company estimated a residual value of $5,200 and a two-year service life.
ACME provides a quality assurance warranty on all sales, and estimates the liability associated with the warranty to be 1% of sales revenue. ACME accrues warranty expense on the last day of each month. The warranty liability covers the life of the product and so is classified as non-current.
During January an appeals court ruled against ACME in a lawsuit involving a customer injury. The customer sued ACME for damages following a firework mishap. ACME now believes it is probable that it will incur a $17,000 loss associated with the claim, but it intends to pursue further appeal and the case could drag on for another couple of years.
During January a customer sued ACME for damages after inadvertently igniting a Vesuvius Spark Fountain in his backpack. ACME believes the probability of incurring a loss on the claim to be remote.
At the end of January, $31,000 of accounts receivable are past due, and the company estimates that 30% of these accounts will not be collected. Of the remaining accounts receivable, the company estimates that 4% will not be collected.
ACME accrued interest expense on notes payable for January.
ACME accrued income taxes at the end of January are $8,000.
By the end of January, $5,000 of the gift cards sold on January 2 have been redeemed for fireworks set-up services.
***I need help with the journal entries for the following:
1. Record the adjusting entry for estimated warranty cost.
2. Record the adjusting entry for uncollectible accounts.
3. Record the closing entry for revenue.
Accounts Debit Credit Cash $ 35,500 Accounts Receivable 50,200 Inventory 22,000 Land 86,000 Equipment 25,000 Allowance for Uncollectible Accounts 6,200 Accumulated Depreciation 3,500 Accounts Payable 30,500 Notes Payable (6%, due April 1, 2019) 70,000 Warranty Liability 26,000 Common Stock 55,000 Retained Earnings 27,500 Totals $ 218,700 $ 218,700Explanation / Answer
1. Entry to record the estimated warranty cost Date Account Title Debit Credit 1/31/18 Warranty expense 3180 Warranty liability 3180 (Estimated warranty expense for the month) Working: Sales in the first half of the month 155000 Sales in the second half of the month 163000 Total Sales 318000 Estimated warranty expense (1% of sales) 3180 2. Entry to record uncollectible accounts at the month end Date Account Title Debit Credit 1/31/18 Bad debt expense 17340 Allowance for uncollectible accounts 17340 (Provision made for uncollectible accounts) Working: Beginning Accounts Receivable A 50200 Sales on credit in the first half of the month B 155000 Sales on credit in the second half of the month C 146000 Total of account receivable before collections (A+B+C) D 351200 Collections during the month E -127400 Write off of receivables during the month F -6800 Balance of accounts receivable at the end of the month (D+E+F) G 217000 Amount past due H 31000 Balance of accounts receivable (current due) (G-H) I 186000 Uncollectible amount of the past due amount (H*30%) J 9300 Uncollectible amount of the current due amount (H*4%) K 7440 Total uncollectible amount (J+K) L 16740 Balance in allowance for uncollectible accounts (6,200 -6,800) M -600 Provision to be made now (L-M) N 17340 3. Entry to close revenue acount Date Account Title Debit Credit 1/31/18 Sales 318000 Income Summary (155,000+163,000) 318000 (Closing of sales revenue account)
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