Question 10-2

be reported in the notes to the (SO 1, 2, 10. What are the differences between determinable, (SO4)K17. How can a company determi 3) K estimated, and contingent liabilities? liabilities are too high? Brief Exercises BE10-1 Rabbitt Enterprises borrows \$10,500 from LowLand Trust Co. on May 1, 2014, signing a 10-month, 4% note payable. Interest is payable the first of each month, starting June 1 . Prepare journal entries for Rabbitt Enterprises to record: (a) the receipt of the proceeds of the note; (b) the first interest payment; (c) an adjusting entry, if required, at Rabbitt's year end, August 31, 2014; and (d) the payment of the note at maturity. BE10-2 In 2014, Song Company introduces a new product that includes a two-year warranty on parts. During 2014,2,500 units are sold for $400 each. The cost of each unit was $175. The company estimates 5% of the units will be defective and that the average warranty cost will be $85 per unit. The company has a December 31 fiscal year end and prepares adjusting entries on an annual basis. (a) Prepare an adjusting entry at December 31,2014 , to accrue the estimated warranty cost. (b) Assume that the warranty contract was honoured on 25 units during 2014 for a total cost of $2,125 to replace defective parts. Prepare an entry dated December 31 to record honouring these warranties. (c) Calculate the profit earned by the company during 2014 on this new product. BE10-3 One-Stop Department Store has a loyalty program where customers are given One-Stop "Money" for cash or debit card purchases. The amount they receive is equal to 2% of the pre-tax sales total. Customers can use the One-Stop Money to pay for part or all of their next purchase at One-Stop Department Store. On July 3, 2014, Judy Wishloff purchases merchandise for $150. She uses $20 of OneStop Money that she has from earlier purchases, and pays for the rest of the purchase with cash. What entry or entries will One-Stop Department Store record for this transaction? Ignore taxes