Question 2 (15 marks)

Below are selected transactions of Blueberry Ltd, a public company, for 2020:

1. On January 1, 2020, the company sold $250,000 of products, all of which carried a

two-year warranty (included in the price). If the two-year warranty was sold

separately, it was estimated that 6% of the selling price represented the warranty

portion. Actual warranty costs were $2,100 in Year 4. 60% of the revenue would be

earned in the first year and the balance being recognized in the second year. The

company uses service-type warranty (revenue-based).

2. On May 10, the company purchased goods from Jay Corp. for $30,000, terms 2/15,

net 30. Blueberry uses the periodic inventory system. The invoice was paid on May

22.

3. On June 1, the company purchased equipment for $90,000 from Sparrow Ltd.,

paying $30,000 in cash and issuing a one-year, 7% note for the balance.

4. On October 1, the company borrowed money from the Third Bank by signing a one

year, zero-interest-bearing note for $90,000. The market rate for a similar note is

7%.

5. On November 1, Blueberry purchased new furniture for $20,000 on account. The

furniture has a useful life of 10 years and the company uses straight-line

depreciation.

Required:

(a) Prepare the journal entries necessary to record the transactions above using

appropriate dates. (9 marks)

(b) Prepare the adjusting entries necessary at year end, December 31, Year 4

related to the above transactions. Round to the nearest dollar