Questions -
1) During August, Arena Company sells $355,000 in product that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a balance of $11,700 before adjustment. Customers returned product for warranty repairs during the month that used $8,300 in parts for repairs. The entry to record the estimated warranty expense for the month is:
Debit Warranty Expense $14,350; credit Estimated Warranty Liability $14,350.
Debit Estimated Warranty Liability $8,300; credit Warranty Expense $8,300.
Debit Warranty Expense $17,750; credit Estimated Warranty Liability $17,750.
Debit Warranty Expense $6,050; credit Estimated Warranty Liability $6,050.
Debit Estimated Warranty Liability $17,750; credit Warranty Expense $17,750.
Q2. On March 17, Grady Company agrees to accept a 60-day, 9%, $7,200 note from Alert Company to extend the due date on an overdue account. What is the journal entry needed to record the payment of the note by Alert Company on the maturity date?
Debit Cash $7,308; credit Interest Revenue $108; credit Notes Receivable $7,200.
Debit Notes Payable $7,200; debit Interest Expense $162; credit Cash $7,362.
Debit Notes Payable $7,200; credit Interest Expense $108, credit Cash $7,092.
Debit Notes Payable $7,200; debit Interest Expense $108; credit Cash $7,308.
Debit Cash $7,308; credit Interest Revenue $108; credit Notes Payable $7,200.