Part A - Provision for Warranties

At 30 June 2021, Stressed Out Ltd adjusted its Provision for Warranties so that it would be equal to 2.5% of sales for the year ended on that date. Sales for the year ended 30 June 2018 were $950,000 and the Provision for Warranties before the adjustment was $12,500.

On 6 October 2021, a successful claim for warranty on faulty goods to the cost of $450 was made on Stressed Out Ltd.

Required: Using the Journal Template provided below:

a. Prepare the general journal entry at 30 June 2021 to adjust the Provision for Warranties to the required level.

b. Record the payment of the warranty claim on 6 October 2021 in general journal format.

c. Prepare the entry if the warranty was a replacement warranty and the cost of the inventory was $625.

Part B - Bills Payable

On the 1st of March 2021 Adelaide Ltd sold goods worth $40,000 on credit to Perth Ltd (terms 20 days). By the 31st of March 2021, Pert Ltd has still not repaid the amount and on the 1st of April 2021 agrees to convert the amount to a 180-day, 8% bill.

Required:

Record the entries to reflect these events (the acceptance of the bill, the adjusting entry and the payment of the bill at the maturity date).

Part C- Debentures

On 1st July 2015 X Ltd issues $200 000 in 5- year debentures that pay interest annually at a coupon rate of 4%. At the time of issuing the securities, the market requires a rate of return of 6%. The interest expense is determined using the effective interest rate method.

Required: This question has thee parts. Answrer ALL Parts below:

(i) Determine the issue price and prepare the relevant general journal entries for the issue. (5 marks)

Debentures

Part (ii) Prepare a table to assist with calculating interest expense and prepare the general journal entries for interest at the end of year 2 and 3. (5 marks)

Debentures

Part (iii) Prepare the general journal entries for the redemption of the 5-year debentures. (5 Marks)