Question 10-3

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. BE10-4 Metropolis Books sold 50,000 copies of a best-selling novel in July for $8 each. Included in each book was a $2 mail-in rebate if the customer sends in proof of purchase with a completed rebate form. Metropolis estimates that 10% of the purchasers will claim the rebate. (a) Calculate the net sales revenue Metropolis earned in July on this book. (b) Prepare an adjusting entry at July 31 to accrue the estimated rebate liability. (c) Assume in August that 1,000 rebate forms are received and processed. Prepare one journal entry to record processing the rebate forms. BE10-5 Rikard's Menswear sells $4,750 of gift cards for cash in December 2014. Rikard's has a December 31 fiscal year end and uses a perpetual inventory system. In January 2015,$2,425 of the gift cards ar