E an electronics retailer has never accrued for

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e) An electronics retailer has never accrued for warranties or product guarantees. A new consumer protection law comes into effect, giving buyers of electronic products a guarantee against defects for 180 days after purchase and the ability to return defective products to the retailer. f) A clothing company that has been operating for 20 years decides to obtain an external audit
for the first time in order to meet the bank's demands. The audit firm recommends that management report inventories at the lower of cost and net realizable value, whereas the company has previously only tracked and reported inventory figures at cost. f c
4. The following trial balance was taken from the books of CB Kayak Corporation at December 31, 2015. Account Debit Credit Cash ................................................................................ 40,000 Accounts Receivable ........................................................ 108,000 Note Receivable ............................................................... 8,000 Allowance for Doubtful Accounts ...................................... 1,800 Merchandise Inventory ..................................................... 54,000 Unexpired Insurance ........................................................ 4,800 Furniture and Equipment .................................................. 138,000 Accumulated Depreciation ............................................... 15,000 Accounts Payable ............................................................ 10,800 Common Shares .............................................................. 44,000 Retained Earnings ........................................................... 65,000 Sales ................................................................................ 410,000 Cost of Goods Sold .......................................................... 128,000 Salaries Expense ............................................................. 53,000 Rent Expense .................................................................. 12,800 Totals ............................................................................... $546,600 $546,600 At year-end, the following items have not yet been recorded. 1. Insurance expired during the year, $3,000. 2. Estimated bad debts, 1 percent of gross sales. 3. Depreciation on furniture and equipment, 10% per year. 4. Interest at 9% is receivable on the note for one full year. 5. Rent paid in advance at December 31, $6,800 (originally debited to expense). 6. Accrued salaries at December 31, $6,200. Instructions a) Prepare the necessary adjusting entries. (6) 1. Insurance Expense .............................................................. 3,000 Unexpired Insurance .......................................... 3,000 2. Bad Debt Expense (410,000 x 1%) ..................................... 4,100 Allowance for Doubtful Accounts ........................ 4,100 3. Depreciation Expense (138,000 x 10%) .............................. 13,800 Accumulated Depreciation .................................. 13,800 4. Interest Receivable (8,000 x 9%) ....................................... 720 Interest Revenue ................................................ 720 5. Prepaid Rent ....................................................................... 6,800 Rent Expense ..................................................... 6,800 6. Salaries Expense ................................................................ 6,200 Salaries Payable ................................................ 6,200

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