Reference no: EM132568207

Question 1 - Company sells a machine for $6,500 under a 12-month warranty agreement that requires the company to replace all defective parts and to provide the repair labor at no cost to the customers. With sales being made evenly throughout the year, the company sells 600 machines in 2010 (warranty expense is incurred 30% in 2010, 20% in 2011 and 50% in 2012). As a result of product testing, the company estimates that the warranty cost is $400 per machine ($250 parts and $150 labor).

Required - Assuming that actual warranty costs are incurred exactly as estimated, prepare the journal entries that would be made under application of the expense warranty accrual method for the following:

i. Warranty costs incurred in 2010.

ii. Warranty costs incurred in 2011.

Question 2 - Yellow Cab Co. began operations on January 2, 2010. It employs 15 drivers who work 8-hour days. Each employee earns 10 paid vacation days annually. Vacation days may be taken after January 10 of the year following the year in which they are earned. The average hourly wage rate was $24.00 in 2010 and $25.50 in 2011. The average vacation days used by each driver in 2011 was 9. Yellow Cab Co. accrues the cost of compensated absences at rates of pay in effect when earned.

Required - Prepare journal entries to record the transactions related to paid vacation days during 2010 and 2011?