What is the liability for deposits on December

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Reference no: EM132700669

Question - The problem (Adapted) Fairy Company sells products with reusable and expensive containers. The customer is charged a deposit for each container delivered and receives a refund for each container returned within two years after the year of delivery.

Number of Containers held by customers on January 1, Year 1 from deliveries in:

Year 1 112,500

Year 2 322,500 435,000

Containers delivered in year 3 585,000

Containers returned in year 3 from deliveries in

Year 1 67,500

Year 2 187,500

Year 3 214,500 469,500

The current year's selling price of each product is at P600 each container. The company maintains a mark-up on cost of 50%. Customers are required for a cash deposit per container amounting to P70. The unit cost of each container is P75 each.

The company's tax rate is at 30%; general and administrative expense totalled 10% of sales while selling and distribution cost amounted to 18%.

Required -

1. Prepare the Income statement for the 3rd year.

2. Be able to answer the following question:

a. What is the liability for deposits on December 31, year 3?

b. Prepare the journal entries in connection with the containers deposit transactions for year 3.

Reference no: EM132700669

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