Reference no: EM132479331

Castellitto Company began selling game consoles on November 1, 2017. The company offers a 75-day warranty for defective merchandise. Based on past experience with other similar products, Castellitto estimates that 2.5% of the units sold will become defective in the warranty period, and that the average cost of replacing or repairing a defective unit is $20. In November, Castellitto sold 30,000 units and 450 defective units were returned. In December, Castellitto sold 32,000 units and 630 defective units were returned. The actual cost of replacing the defective units was $21,600. Instructions

Question (a) Make a journal entry to accrue for the estimated warranty costs for the November and December sales at December 31, 2017.

Question (b) Make a one summary journal entry at December 31, 2017, to record the cost of replacing the defective game consoles returned during November and December.

Question (c) What amounts will be included in Castellitto's 2017 income statement and balance sheet at December 31, 2017, with regard to the warranty?

Calculate customer loyalty program liability.

Part 2: Steig's Sports Store has a customer loyalty program in which it issues points to customers for every cash purchase that can be applied to future purchases. For every dollar spent, a customer receives three points. Each point is worth one cent. There is no expiry date on the points. Steig's estimates that 35% of the points issued will eventually be redeemed. Steig's has a December 31 year end.The program was started in 2016. During 2016, 900,000 points were issued. Sales for 2016 were $300,000. In 2017, 1.2 million points were issued. Total sales for 2017 were $400,000.

Instructions

Question (a) What is the stand-alone value of the points issued in 2016? In 2017?

Question (b) Make the journal entries to record the sales for 2016 and 2017.

Question (c) When the points are redeemed, how is this accounted for? What is the impact of the point redemptions on profit and cash flow?

• Identify type of liability.

Part 3: A list of possible liabilities follows:

1.An automobile company recalled a particular car model because of a possible problem with the brakes. The company will pay to replace the brakes.

2.A large retail store has a policy of refunding purchases to dissatisfied customers under a widely advertised "money-back, no questions asked" guarantee.

3.A manufacturer offers a three-year warranty at the time of sale.

4.To promote sales, a company offers prizes (such as a chance to win a trip) in return for a specific type of bottle cap.

5.A local community has filed suit against a chemical company for contamination of drinking water. The community is demanding compensation, and the amount is uncertain. The company is vigorously defending itself.

Instructions

Question (a) State whether you believe each of the above liabilities is determinable, estimable, or contingent, and explain why.

Question (b) If you identify the liability as contingent in part (a), state what factors should be considered in determining if it should be recorded, disclosed, or neither recorded nor disclosed in the financial statements.

• Analyze contingency.

Part 4: Sleep-a-Bye Baby Company, a public company, is the defendant in a lawsuit alleging that its portable baby cribs are unsafe. The company has offered to replace the cribs free of charge for any concerned parent. Nonetheless, it has been sued for damages and distress amounting to $1.5 million. The company plans to vigorously defend its product safety record in court.

Instructions

Question (a) What should the company record or report in its financial statements for this situation? Explain why.

Question (b) What if Sleep-a-Bye Baby Company's lawyers advise that it is likely the company will have to pay damages of $100,000? Does this change what should be recorded or reported in the financial statements? Explain.

Question (c) How would your answers to parts (a) and (b) change if Sleep-a-Bye Baby Company were a private company that had chosen to follow ASPE?

• Record payroll.

Part 5: Hidden Dragon Restaurant's gross payroll for April is $46,600. The company deducted $2,162 for CPP, $853 for EI, and $9,011 for income taxes from the employees' cheques. Employees are paid monthly at the end of each month.

Instructions

Question (a) Make a journal entry for Hidden Dragon on April 30 to record the payment of the April payroll to employees.

Question (b) Make a journal entry on April 30 to accrue Hidden Dragon's employer payroll costs. Assume that Hidden Dragon is assessed workers' compensation premiums at a rate of 1% per month and accrues for vacation pay at a rate of 4% per month.

Question (c) On May 15, Hidden Dragon pays the government the correct amounts for April's payroll. Make a journal entry to record this remittance.

• Calculate current and non-current portion of notes payable, and interest payable.

Part 6: Emerald Enterprises has three notes payable outstanding on December 31, 2016, as follows:

1. A six-year, 6%, $60,000 note payable issued on March 31, 2016. Emerald Enterprises is required to pay $10,000 plus interest on March 31 each year starting in 2017.

2. A seven-month, 4%, $30,000 note payable issued on July 1, 2016. Interest and principal are payable at maturity.

3. A 30-month, 5%, $120,000 note payable issued on September 1, 2016. Emerald Enterprises is required to pay $4,000 plus interest on the first day of each month starting on October 1, 2016. All payments are up to date.

Instructions

Question (a) Calculate the current portion of each note payable.

Question (b) Calculate the non-current portion of each note payable.

Question (c) Calculate any interest payable at December 31, 2016.