Answer:
Case 1.
Dr Vacation Benefit Expense $8,740
Cr Vacation Benefit Payable $8,740
Case 2.
Dr Warranty Claim Expense $6,120
Cr Provision for Warranty $6,120
Explanation:
Now here, we have two cases. The first case is related to the monthly benefits given to employees which will be accounted for according to the accrual basis. The second case is of the warranty which would be accounted for according to the International Accounting Standard IAS 37 Provisions, Contingent Liabilities and Contingent Assets.
Case 1. The accrual basis says that the expense must recognized when it has been incurred. In the current scenario, the vacation benefits were promised so the firm must recognize $8,740 as an expense.
The entry would be:
Dr Vacation Benefit Expense $8,740
Cr Vacation Benefit Payable $8,740
Now, the second case is the recording of the warranty claims expected which must be recognized as an expense. The warranty claim can be calculated as the number of units are 8% of total units sold during December which is 360 units (4,500 * 8%). Furthermore, the cost of maintenance per unit is $17 per unit which means the total cost of maintenance would be $6,120. So the entry would be recognizing provision for the warranty claim of $6,120 for the month.
The entry would be:
Dr Warranty Claim Expense $6,120
Cr Provision for Warranty $6,120
