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ACT124HW1answers - E 13-2 Determining accrued interest in...

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E 13-2 Determining accrued interest in various situations LO2 LO3 On July 1, 2006, Ross-Livermore Industries issued nine-month notes in the amount of $200 million. Interest is payable at maturity. Required: Determine the amount of interest expense that should be recorded in a year-end adjusting entry under each of the following independent assumptions: Interest Rate Fiscal Year-End 1. 12% December 31 2. 10% September 30 3. 9% October 31 4. 6% January 31 1. Interest rate Fiscal year-end Interest expense 12% December 31 $ 12 million 2. Interest rate Fiscal year-end Interest expense 10% September 30 $ 5 million 3. Interest rate Fiscal year-end Interest expense 9% October 31 $ 6 million 4. Interest rate Fiscal year-end Interest expense 6% January 31 $ 7 million E 13-12 Warranties LO5 LO6 Cupola Awning Corporation introduced a new line of commercial awnings in 2006 that carry a two-year warranty against manufacturer's defects. Based on their experience with previous product introductions, warranty costs are expected to approximate 4.5 % of sales. Sales and actual warranty expenditures for the first year of selling the product were: Sales Actual Warranty Expenditures $ 4,285,000 $ 48,206 Required: 1. Does this situation represent a loss contingency? 2. Prepare journal entries that summarize sales of the awnings (assume all credit sales) and any aspects of the warranty that should be recorded during 2006. 3. What amount should Cupola report as a liability at December 31, 2006? 1. Yes 2. 2006 Sales
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Accounts receivable 4,285,000 Sales 4,285,000 Accrued liability and expense Warranty expense 192,825 Estimated warranty liability 192,825 Actual expenditures Estimated warranty liability 48,206 Cash, wages payable, parts and supplies, etc. 48,206 3. The liability at December 31, 2006 = $ 144,619 E 13-13 Extended warranties LO5 LO6 Carnes Electronics sells consumer electronics that carry a 90-day manufacturer's warranty. At the time of purchase, customers are offered the opportunity to also buy a two-year extended warranty for an additional charge. During 2006, Carnes received $412,000 for these extended warranties (approximately evenly throughout the year).
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