Posted: April 6th, 2016

What is the balance in the warranty liability account on December 31, 2010?

1. Stan Ocean Works sells scuba equipment, which carry a 2-year warranty against defects. Past experience has given them a basis to estimate warranty costs as a percent of sales as follows: 2% during the first year after sale and 5% in the second year after sale. Sales and actual warranty expenditures for four years of business were as follows:

Sales Actual warranty expenditures
2007 $400,000.00 $10,000.00
2008 $250,000.00 $24,000.00
2009 $880,000.00 $18,000.00
2010 $620,000.00 $42,000.00

What is the balance in the warranty liability account on December 31, 2010?

2. The stockholders equity for Stan Ocean Works company consisted of the following balances:

Common stock, $10 par, authorized 300,000 shares issued and outstanding 248,000 shares $2,480,000.00
Apic -common $225,000.00
Preferred 5% stock, $40 par $1,545,000.00
Apic – preferred $125,000.00
Retained earnings $2,075,000.00
Treasury stock (at $20 fmv) $240,000.00

A.) A stock dividend of 10% is declared on common stock when the fair market value is $18. Prepare the je for the date of declaration of the stock dividend. Ignore any impact on preferred stock.

B.) After the je for the stock dividend is posted, what is the balance of the stockholder’s equity account?

3. Use the attached table to answer the questions below:

A. Label the headings of the bond amortization table and if there is a calculation for that column provide the formula:

G. Prepare the je for the date of issuance

H. Prepare the je for the interest payment for 02/29/09

I) Assume that on 12/31/2010 the company retires the bonds at 102 plus accrued interest. Provide the gain/loss calculation and the je’s needed.

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