Problem 1 - Accounting for Receivables-Journal Entries

The following transactions affecting the accounts receivable of Wonderland Corporation took place during the year ended January 31, 2015:

Sales (cash and credit) - $591,050

Cash received from credit customers, all of whom took advantage of the discount feature of the corporation's credit terms 4/10, n/30 - 303,800

Cash received from cash customers - 210,270

Accounts receivable written off as worthless - 5,250

Credit memoranda issued to credit customers for sales returns and allowances - 63,800

Cash refunds given to cash customers for sales returns and allowances - 13,318

Recoveries on accounts receivable written off as uncollectible in prior periods (not included in cash amount stated above) - 8,290

The following two balances were taken from the January 31, 2014, balance sheet:

Accounts Receivable - $ 95,842

Allowance for Bad Debts - 9,740 (credit)

The corporation provides for its net uncollectible account losses by crediting Allowance for Bad Debts for 1.5% of net credit sales for the fiscal period.

Instructions:

1. Prepare the journal entries to record the transactions for the year ended January 31, 2015.

2. Prepare the adjusting journal entry for estimated uncollectible accounts on January 31, 2015.

Problem - Warranty Liability

Sound Portal Corporation sells stereos under a two-year warranty contract that requires Sound Portal to replace defective parts and provide free labor on all repairs. During 2014, 1,290 units were sold at $950 each. In 2015, Sound Portal sold an additional 1,100 units at $980. Based on past experience, the estimated two-year warranty costs are $25 for parts and $30 for labor per unit. It is also estimated that 40% of the warranty expenditures will occur in the first year and 60% in the second year. Actual warranty expenditures were as follows:

2015 2016

Stereos sold in 2014 $28,500 $37,800

Stereos sold in 2015 - 28,200

Instructions: Assuming that sales occurred on the last day of the year for both 2014 and 2015, give the necessary journal entries for the years 2014 through 2016. Analyze the warranty liability account for the year ended December 31, 2016, to see whether the actual repairs approximate the estimate. Should Sound Portal revise its warranty estimates?

Attachment:- Assignment Files.rar