Diagnostics Corp. sells its products in expensive, reusable containers. The customer is charged a deposit for each container that is delivered and receives a refund for each container that is returned within two years after the year of delivery. When a container is not returned within the time limit, Diagnostics accounts for the container as being sold at the deposit amount. Information for 2011 is as follows:

Instructions
(a) Prepare all journal entries required for Diagnostics Corp. for the reusable containers during 2011.
(b) Calculate the total amount that Diagnostics should report as a liability for reusable containers at December 31, 2011.
(c) Should the liability calculated in (b) be reported as current or long-term? Explain.
(AICPA adapted)

Transcribed Image Text:

Containers held by customers at December 31, 2010, from deliveries in: 2009 $170,000 2010 480,000 $650,000 Containers delivered in 2011 Containers returned in 2011 from deliveries in: 894,000 2009 $115,000 2010 280,000 2011 310,400 705,400