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Ayayai Enterprises Ltd . sells a specialty part that is used in widescreen televisions and provides the ultimate in screen clarity. To promote sales of
Ayayai Enterprises Ltd
sells a specialty part that is used in widescreen televisions and provides the ultimate in screen clarity. To
promote sales of its product, Ayayai launched a program with some of its smaller customers. In exchange for making Ayayai their
exclusive supplier, Ayayai guarantees these customers to their creditors so that Ayayai will assume the customers' long
term debt in
the event of non
payment to the creditors. In addition to charging for parts, Ayayai also charges a fee to customers who take the
guarantee program. It bases the fee on the time frame that the guarantee covers, which is typically three years. In the current fiscal
year, the fees collected amounted to $
for the three
year coverage period.
Six months before Ayayai's fiscal year end, one of its customers, Blue Corp., began to experience financial difficulties and missed two
months of mortgage payments. Blue's lender then called on Ayayai to make the mortgage payments. At its fiscal year end on December
Ayayai had recorded a receivable of $
related to the payments made by Ayayai on Blue's behalf. Blue owes the lender
an additional $
at this point. The lender is thinking of putting a lien on Blue's assets that were pledged as collateral for the loans.
However, the collateral involves rights to the development of new state
of
the
art three
dimensional television technology that is still
unproven. Ayayai follows ASPE.
a
Prepare all required journal entries and adjusting entries on Ayayai's books to recognize the transactions and events described above.
Hint: Use the accounts Service Revenue, Loss on Guarantee, and Liability for Guarantee.
Credit account titles are automatically
indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select
No Entry"
for the account titles and enter
for the amounts.
Account Titles and Explanation
Debit
Credit
To record cash received from customers
To record payment made on behalf of Blue
To record revenue
To record loss on guarantee
Prepare all required journal entries and adjusting entries on Ayayai's books to recognize the transactions and events described above.
Hint: Use the accounts Service Revenue, Loss on Guarantee, and Liability for Guarantee.Credit account titles are automatically
indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select No Entry"
for the account titles and enter for the amounts.
Account Titles and Explanation
Debit
Credit
To record cash received from customers
To record payment made on behalf of Bramble
To record revenue
Liability for Guarantee
To record loss on guarantee
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