At the beginning of 2013, Scarlet Industries began offering a three-year warranty on

1. At the beginning of 2013, Scarlet Industries began offering a three-year warranty on

its products. The warranty program was expected to cost Scarlet 2% of net sales,
approximately equally over the three-year warranty period. Net sales made under
warranty in 2013 were $270 million. Thirteen percent of the units sold were returned
in 2013 and repaired or replaced at a cost of $2 million. The actual warranty
expenditures of $2 million were debited to warranty expense as they were incurred.
Required:
Prepare the appropriate adjusting entry to adjust warranty expense on December 31,
2013 for the remaining estimated future warranty obligations. Show calculations.

2. Ellen's Antiques reported the following in its December 31, 2013, balance sheet:

In a disclosure note, Ellen's indicates that it uses straight-line depreciation over eight
years and estimates salvage value at 10% of cost.
Required:
Compute the average age of Ellen's equipment at 12/31/2013.
3. On September 5, 2013, Howard Corporation signed a purchase commitment to
purchase inventory for $130,000 on or before March 31, 2014. The company's fiscal
year-end is December 31. The contract was exercised on March 4, 2014, and the
inventory was purchased for cash at the contract price. On the purchase date of March
4, the market price of the inventory was $116,000. The market price of the inventory
on December 31, 2013, was $120,000. The company uses a perpetual inventory
system.
Required:
1. Prepare the necessary adjusting journal entry (if any is required) on December 31,
2013.

2. Prepare the journal entry to record the purchase on March 4, 2014.

4. During Burns Company's first year of operations, credit sales totaled $140,000 and

collections on credit sales totaled $105,000. Burns estimates that bad debt losses will
be 1.5% of credit sales. By year-end, Burns had written off $300 of specific accounts
as uncollectible.
Required:
1. Prepare all appropriate journal entries relative to uncollectible accounts and bad
debt expense.
2. Show the year-end balance sheet presentation for accounts receivable net of the
allowance for uncollectible accounts.