Listed below are a few transactions and events of Maxum Company. 1. Employees ea

Question

Listed below are a few transactions and events of Maxum Company. 1. Employees earn vacation pay at a rate of one day per month. During December, 20 employees qualify for one vacation day each. Their average daily wage is $160 per employee. 2. During December, Maxum Company sold 12,000 units of a product that carries a 60-day warranty. December sales for this product total $460,000. The company expects 10% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $15. Prepare any necessary adjusting entries at December 31, 2015, for Maxum Company’s year-end financial statements for each of the above separate transactions and events.

Explanation / Answer

Maxum Company Adjusting Journal Entries as on December 31, 2015 1. Vacation Pay A/c DR $ 3,200 (20 employees X $ 160 per employee) To Vacation Dues Payable (Current Liabilities) A/c $ 3,200 2. Accounts Receivable A/c DR $ 460,000 To Sales A/c $ 460,000 Warranty Repairs A/c DR $18,000 (12,000 units X 10% X $15 per unit) To Provision for Warranty A/c (Current Liabilities) $18,000

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