Reference no: EM132708389
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
Total 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
Total 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.
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