Question 6 (4 marks)

UVW Limited (UVW) adjusted its Provision for Warranties on 30^th June 20X3 so that it would be equal to 5% of sales. UVW Limited prepares its financial reports on 30^th June 20X3. The sales for the year ended on 30^th June 20X3 were $1280 000. The opening balance of the Provision for Warranties was $37 600.

On 15^th October 20X3, a successful claim for the warranty on faulty goods to the cost of $720 was made on UVW Limited.

Required:

Prepare the general journal entry on 30^th June 20X3 to adjust the provision for warranties to the required level [2 Marks]

ANSWER a):

Record the payment of the warranty claim on 15^th October 20X3 in the general journal [2 Marks]

ANSWER b):