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Compute the estimated warranty expense payable amount
Course:- Accounting Basics
Reference No.:- EM13504654




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Introduction

On July 25, 20x1, Jake's Computer Sales and Repair enters into an agreement with Inner-Tech, a local computer software development firm. Inner-Tech pays Jake's Computer Sales and Repair $45,000 in advance for ongoing computer repair services. At year-end, Jake determines that $38,500 of this amount has been earned.

Requirement 1

a.        Journalize the unearned revenue transaction on July 25, 20x1.

DATE

Account and Explanation

DEBIT

CREDIT

Jul 25

 

 

 

 

 

 

 

 

To record unearned revenue

 

 

 

 

 

 

b.       Journalize the necessary adjustment for December 31, 20x1.

 

DATE

Account and Explanation

DEBIT

CREDIT

Dec 31

 

 

 

 

 

 

 

 

To adjust unearned revenue

 

 

 

 

 

 

 

Requirement 2

Analysis shows that around 2 percent of A-line sales require after-sale repairs. Beginning July 1, 20x1, Jake's Computer Sales and Repair provides customers with a limited product warranty on each A-line computer sold. Sales of A-line computers total to $74,500 in July 20x1.

a.           Compute the estimated warranty expense payable amount.

b.          Journalize the estimated warrantee expense.

 

DATE

Account and Explanation

DEBIT

CREDIT

Jul 31

 

 

 

 

 

 

 

 

To accrue warranty payable

 

 

 

 

 

 

c.           Actual repairs made during August 20x1 to products under warranty results in cash expenditures of $800. Journalize the warranty repair cost.

 

DATE

Account and Explanation

DEBIT

CREDIT

Aug 30

 

 

 

 

 

 

 

 

To accrue warranty payable

 

 

 

 

 

 

d.          At what amount is warranty expense reported on the income statement for the month ended August 20x1?

 

Requirement 3

Jake's Computer Sales and Repair has one employee, Dave, who earns a monthly gross salary of $3,415 for the month of August 20x1. So far, in 20x1, Dave has earned a gross salary amounting to $23,905.

Jake's Computer Sales and Repair withholds the following amounts from Dave's gross salary:

 

  • Social Security taxes and Medicare taxes-Federal Insurance Contributions Act (FICA)-at 7.65 percent of gross salary up to $106,800
  • Income tax withheld: 10 percent
  • Other amounts withheld:
    • Health insurance: $200 per month
    • Retirement plan contribution: $400 per pay period
    • Charitable contribution: $20 per pay period

 

a.        Compute Dave's net salary by completing the following table:

 

Gross pay:

 

 

Less withholding deductions:

 

 

                Income tax

 

 

                Employee FICA tax

 

 

                Health insurance

 

 

                Employee retirement contribution

 

 

                Employee charitable contribution

 

 

Net pay

 

 

 

b.       Journalize salaries, payroll taxes, and benefits payable. In addition, journalize the salary payment.

 

DATE

 

DEBIT

CREDIT

Aug 31

 

 

 

 

 

 

 

 

To record salaries payable

 

 

 

 

 

 

DATE

 

DEBIT

CREDIT

31

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

To record payment of salary

 

 

 

 

 

 

 

 

 

c.        As Dave's employer, Jake's Computer Sales and Repair must also make a payroll tax payment. Journalize the entry to record employer payroll taxes.

 

DATE

 

DEBIT

CREDIT

Aug 31

 

 

 

 

 

 

 

 

To record employer payroll taxes

 

 

 

 

 

d.       Journalize the payment of taxes to the federal government.

DATE

 

DEBIT

CREDIT

Aug 31

 

 

 

 

 

 

 

 

 

 

 

 

To record payment of payroll taxes to government

 

 

 

 

 

 

 

 




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