Question

Employees earn vacation pay at a rate of one day per month. Maxum estimated and must expense $13,000 of accrued vacation benefits for the year. During December, Maxum Company sold 12,000 units of a product that carries a 60-day warranty. December sales for this product total $460,000. The company expects 10% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $15.
Required:
Prepare adjusting entries at December 31 for Maximum Company's year-end financial statements for each of the above separate transactions.

Answer 1

Answer and Explanation:

The journal entries are shown below:

1

Vacation Benefit Expense  $13,000  

                To Vacation Benefit Payable $13,000

(Being vacation benefit expense is recorded)

2

Warranty Expense $18,000  

           To Estimated Warranty Liability $18,000

($12,000 × 10 % × $15) = $18,000

(Being warranty expense is recorded)

These two entries need to be passed