Practice Problem 13-1

Listed below are selected events transactions relating to Splish Brothers, Inc. for the current year ending December 31. Splish Brothers manufactures laptop computers for sale in its own stores and for sale by other retailers.

1.		On December 1, Splish Brothers accepted an order from a new customer, Buffalo Computers. Buffalo has a questionable credit history, so Splish Brothers requires a $11,000 deposit from Buffalo in order to begin production on its order.
2.		During December, cash sales at Splish Brotherss retail locations totaled $4,708,000, which includes the 7% sales tax Splish Brothers must remit to the state by the fifteenth day of the following month.
3.		During the year, Splish Brothers was sued by a competitor for a patent violation. The competitor is claiming that Splish Brotherss liability is $2,800,000. Splish Brotherss attorneys have advised it that it is probable that the court will find for the companys competitor. The attorneys estimate that the liability under the suit could be as little as $112,000 or as much as $560,000. The attorneys do not believe any amount within this range is a better estimate of Splish Brotherss liability than any other amount within the range.
4.		Splish Brothers provides one-year warranties on the laptops it sells. During the year, Splish Brotherss laptop sales totaled $112,000,000. Historically, Splish Brotherss warranty liability has been one percent of total sales. Splish Brothers began the year with a warranty liability balance of $900,000. Warranty expenditures during the year were $870,000 for computers sold in prior years and $269,000 for computers sold during the year. These expenditures were recorded as credits to cash and debits to the warranty liability account. Any remaining warranty liability is expected to relate to computers sold during the current year.

Prepare all the journal entries necessary to record the transactions noted above as they occurred and any adjusting journal entries relative to the transactions that would be required to present fair financial statements at December 31. For simplicity, assume that adjusting entries are recorded only once a year on December 31. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

No. Date Account Titles and Explanation Debit Credit 1. 2. 3. 4