Superior Skateboard Company, located in Ontario, is preparing adjusting entries at December 31, 2023. An analysis reveals the following:

During December, Superior sold 6,800 skateboards that carry a 60-day warranty. The skateboard sales totalled $393,000. The company expects 9% of the skateboards will need repair under warranty and it estimates that the average repair cost per unit will be $41.

A disgruntled employee is suing the company. Legal advisers believe that it is probable that Superior will have to pay damages, the amount of which cannot be reasonably estimated.

Superior needs to record previously unrecorded cash sales of $2,130,000 (cost of sales 70%) plus applicable HST.

Superior recognizes that $98,000 of $163,000 received in advance for skateboards has now been earned.