Question

employees earn vacation pay at a rate of one day per month. During December, 35 employees qualify for one vacation day each. Their average daily wage is $160 per employee. During December, Maxum Company sold 4,500 units of a product that carries a 60-day warranty. December sales for this product total $125,000. The company expects 7% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $10. Prepare any necessary adjusting entries at December 31, 2017, for Maxum Company’s year-end financial statements for each of the above separate transactions and events.

Answer 1

Answer:

Listed below are a few transactions and events of Maxum Company.

 

1. Employees earn vacation pay at a rate of one day per month. During December, 35 employees qualify for one vacation day each. Their average daily wage is $160 per employee.

2. During December, Maxum Company sold 4,500 units of a product that carries a 60-day warranty. December sales for this product total $125,000. The company expects 7% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $10.

Prepare any necessary adjusting entries at December 31, 2017, for Maxum Company’s year-end financial statements for each of the above separate transactions and events.

Vacation benefits expense

= number of employees × number(s) of day × the average daily wage per employee

Given,

number of employees = 35

number(s) of day = 1

The average daily wage per employee = $160

= 35 employees × 1 day × $160

= $5,600

Warranty expense

= number of units of products sold × percentage of the units for warranty × the average repair cost per unit

Given,

number of units of products sold = 4500 units

percentage of the units for warranty = 7%

The average repair cost per unit = $10

= 4,500 units × 7% × $10

= $3,150

P.S. The attached image duly shows the answer.