Prepare any necessary adjusting entries at December 31, 2011, for Madison Company’s year-end financial statements for each of the following separate transactions and events.
1. During December, Madison Company sold 4,100 units of a product that carries a 60-day warranty. December sales for this product total $164,000. The company expects 6% of the units to need warranty repairs, and it estimates the average repair cost per unit will be $14.
2. A disgruntled employee is suing Madison Company. Legal advisers believe that the company will probably need to pay damages, but the amount cannot be reasonably estimated.
3. Employees earn vacation pay at a rate of one day per month. During December, 28 employees qualify for one vacation day each. Their average daily wage is $105 per employee.
4. Madison Company guarantees the $13,000 debt of a supplier. The supplier will probably not default on the debt.
5. Madison Company records an adjusting entry for $520,000 of previously unrecorded cash sales (costing $260,000) and its sales taxes at a rate of 7%.
6. The company earned $104,000 of $260,000 previously received in advance for services.