Question

Accounting for estimated liabilities LO P4

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, 29 employees qualify for one vacation day each. Their average daily wage is $250 per employee.

2. During December, Maxum Company sold 4,000 units of a product that carries a 60-day warranty. December sales for this product total $132,000. The company expects 6% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $12.

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.

1. Employees earn vacation pay at a rate of one day per month. During December, 29 employees qualify for one vacation day each. Their average daily wage is $250 per employee. Record the related adjusting entry.

2. During December, Maxum Company sold 4,000 units of a product that carries a 60-day warranty. December sales for this product total $132,000. The company expects 6% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $12. Record the related adjusting entry.

Answer 1

Answer: Please refer to answer

Step-by-step explanation:

The relates adjusting entries are,

December 31, 2015

DR Vacation Benefit Expense (29*250) $ 7,250

CR Vacation Benefits Payable $7,250

(Accounting for Vacation Benefit Payable)

December 31, 2015

DR Warranty Expense ( (4000*0.06) *12) $2,880

CR Estimated Warranty Liability $2,880

(Accounting for Warranty Liability)

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