Quiz 8

1.  Union Apparel has sales including sales taxes for the month of $551,200. If the sales tax rate is 6%, what are Union Apparel’s sales for the month?

$500,000.

$518,128.

$520,000.

$551,200.

2.  At the beginning of 2021, Angel Corporation began offering a 1-year warranty on its products. The warranty program was expected to cost Angel 4% of net sales. Net sales made under warranty in 2021 were $180 million. Five percent of the units sold were returned in 2021 and repaired or replaced at a cost of $5.3 million. The amount of warranty expense in Angel’s 2021 income statement is:

Multiple Choice

$5.3 million.

$7.2 million.

$9.0 million.

$27.0 million.

3.   Talks-A-Lot, Inc. sells cell phones to customers and expects that 10% of phones sold will be returned for repair under its warranty program. The average repair cost is $75 per phone. For 2021, Talks-A-Lot has sold 750 cell phones and has repaired 30 of them as of December 31, 2021. What amount of warranty liability should be reported at December 31, 2021?

$2,250.

$3,375.

$5,625.

None, all expected returns from warranties have been received.

4.  Region Jet has a $50 million liability at December 31, 2021, of which $10 million is payable in 2022. In its December 31, 2021 balance sheet, the company reports the $50 million debt as a:

$50 million current liability in the balance sheet.

$50 million long-term liability in the balance sheet.

$10 million current liability and a $40 million long-term liability in the balance sheet.

$40 million current liability and a $10 million long-term liability in the balance sheet.

5.  On September 1, 2021, Daylight Donuts signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2022. Daylight Donuts records the appropriate adjusting entry for the note on December 31, 2021. In recording the payment of the note plus accrued interest at maturity on March 1, 2022, Daylight Donuts would: (Do not round your intermediate calculations.)

Debit Interest Expense, $3,000.

Debit Interest Expense, $1,500.

Debit Interest Payable, $1,500.

Debit Interest Expense, $4,500.

6.  On September 1, 2021, Daylight Donuts signed a $100,000, 9%, six-month note payable with the amount borrowed plus accrued interest due six months later on March 1, 2022. Daylight Donuts should report interest payable at December 31, 2021, in the amount of: (Do not round your intermediate calculations.)

$0.

$1,500.

$3,000.

$4,500.

7. United Supply has a $5 million liability at December 31, 2021, of which $1 million is payable in each of the next five years. United Supply reports the liability in the balance sheet as a:

$5 million current liability.

$5 million long-term liability.

$1 million current liability and a $4 million long-term liability.

$4 million current liability and a $1 million long-term liability.

8.  Reeves Co. filed suit against Higgins, Inc., seeking damages for copyright violations. Higgins’ legal counsel believes it is probable that Higgins will settle the lawsuit for an estimated amount in the range of $100,000 to $200,000, with all amounts in the range considered equally likely. How should Higgins report this litigation?

As a liability for $100,000 with disclosure of the range.

As a liability for $150,000 with disclosure of the range.

As a liability for $200,000 with disclosure of the range.

As a disclosure only. No liability is reported.

9  Strikers, Inc. sells soccer goals to customers over the Internet. History has shown that 2% of Strikers’ goals will need repair under the warranty program. For the year, Strikers has sold 4,000 goals and 45 have been repaired. If the estimated cost to repair a goal is $200, what would be the warranty expense for the year?

$0.

$16,000.

$7,000.

$9,000.

10. Carpenter Inc. estimates warranty expense at 2% of sales. Sales during the year were $4 million and warranty expenditures were $44,000. What was the balance in the Warranty Liability account at the end of the year?

$44,000.

$80,000.

$36,000.

$480,000.