IOA-14 10A-3. GLOBAL supermarkets of Bunol, Spain runs a special on tomatoes dur

Question

IOA-14 10A-3. GLOBAL supermarkets of Bunol, Spain runs a special on tomatoes during the annual La Tomatina festival!. They also run a money-back guarantee for anyone with unused tomatoes who is not completely satisfied with their acrodynamic qualities. From past history, GLOBAL knows that only 1.5% of the tomatoes will be returned. This year they sell 600,000 kilograms of tomatoes at a price of 0.40 euros per kilo. Required: I. Show the adjusting T-account entry necessary to record the liability created by the money-back guarantee 2. Show the entry that GLOBAL will have to make when a soggy-but-happy ustomer returns a kilo of tomatoes sometime after the adjusting entry in equirement I is made.

Explanation / Answer

Journal

(Amount in Euro's)

No. Account Name Debit Credit 1. Warranty expense (600000 kg x 1.5% x 0.40) 3600 Estimated warranty liability 3600 (To record estimated money-back guarantee expense) 2. Estimated warranty liability (1kg x 0.40) 0.40 Cash 0.40 (To record customer return)

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