7.A company recorded net sales of S550,000 in 2017 for products carrying a 2-yea

Question

7.A company recorded net sales of S550,000 in 2017 for products carrying a 2-year warranty. The company estimates that repair costs for the product will average 5% of the selling price. The estimated warranty liability at the beginning of 2017 was $4,100 and $28,300 in warranty work was performed during the year. What was the ending balance in the estimated warranty liability account? A. $4,900 B. S3,300 C. S 800 D. S1,650 E. S,500 8. Answer the following as true or false, then select the correct corresponding multiple choice answer: Working Capital will increase when accrued salaries are paid. The cash proceeds on a non-interest bearing note are higher than the principal amount of the note. You are considering buying a house in 5 years and want to have a down payment of $30,000 at that time. You would need to deposit $22,320 in an account earning 6% interest, compounding semi-annually today to have $30,000 in 5 years. A. False, False, True B. False, False, False C. True, True, True D. True, False, True E. False, True, False 9.On April 1,2017, Dallas Company borrowed S120,000 on a bank note for 7 months. The bank discounted the note at 4%. The entry to record the payment of this note on October 31,2017 would include a A. debit to interest payable for $2,800 B. credit to cash for $117.200 C. credit to discount for $2,800 D. credit to note payable for $120,000 E. debit to interest expense for $4,800 10. On January 1, 2017, Aggie Company purchased a building for $65,000, making a cash down payment of $5,000 and signing a note requiring eight equal semi-annual payments for the balance. Payments are to be made on June 30 and December 31 . The implicit interest rate is 6%. What is the amount of each semi-annual payment? A. $9,260 B. $7,500 C. $8,125 D. $8,547 E. $9,662

Explanation / Answer

Solution 7 :

Warranty provision to be created for 2017 = $550,000 * 5% = $27,500

Beginning balance of warranty liability = $4,100

Warranty repair work performed = $28,300

Ending balance of estimated warranty liability = $27,500 + $4,100 - $28,300 = $3,300

Hence option B is correct.

Solution 8:

1. False, working capital remain the same when accrued salaries are paid.

2. False, cash proceed from non interest bearing note is equal to principal amount of note

3. Future value = $22,320 * (1 + 0.03)^10 = $30,000, hence statement is true.

Therefore option A is correct.

Solution 9:

The entry to record payment of note will include credit to discount for $2,800

Hence option C is correct.

Solution 10:

Amount of semiannual payment = $60,000 / Cumualtive PV factor at 3% for 8 periods

= $60,000 / 7.019692 = $8,547

Hence option D is correct.

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