Question # 1

On December 1, Cypress Grove Company introduces a new product that includes a one-year warranty on parts. In December, 500 units are sold. Management believes that 5% of the units will be defective and that the average warranty costs will be $60 per unit. Prepare the adjusting entry at December 31 to accrue the estimated warranty cost.

Question # 2

Prepare the necessary journal entries for the following transactions:

(a)On September 1, Draper Company borrowed $180,000 from Dixion County Bank on a 6-month, 8% note.

(b)On December 31, Draper Company accrued interest (assume adjusting entries are only made at the end of the year).

Question # 3

Back Cove Yacht Company billed its customers a total of $1,575,000 for the month of November. The total includes a 5% state sales tax.

Instructions

(a)Determine the proper amount of revenue to report for the month.

(b)Prepare the general journal entry to record the revenue and related liabilities for the month.

Question # 4

Ishee Company does not segregate sales and sales taxes on its cash register. Its register total for the month is $291,500, which includes a 6% sales tax.

InstructionsCompute sales taxes payable, and make the entry to record sales and sales taxes payable.

Question # 5

Country Outfilter's 2017 financial statements contained the following data (in millions).

Current assets$16,890Accounts receivable$1,550

Total assets 42,430Interest expense980

Current liabilities 12,000Income tax expense1,270

Total liabilities 32,580Net income2,230

Cash 380

Instructions

Compute these values:

(a)Working capital.(b)Current ratio.

Question # 6

LaCrema Company publishes a monthly decorating magazine, Remodelista. Subscriptions to the magazine cost $25 per year. During October 2016, LaCrema sells 18,000 subscriptions beginning with the November issue. LaCrema prepares financial statements quarterly and recognizes subscription revenue earned at the end of the quarter. The company uses the accounts Unearned Subscriptions and Subscription Revenue.

Instructions

(a)Prepare the entry in October for the receipt of the subscriptions.

(b)Prepare the adjusting entry at December 31, 2016, to record subscription revenue earned in December 2016.

(c)Prepare the adjusting entry at March 31, 2017, to record subscription revenue earned in the first quarter of 2017.