Sask Tractor borrowed $320,000 to purchase inventory on September 17, 2020 for 60 days at 6% interest by signing a note.

On December 6, 2020, Sask Tractor sold a tractor for cash of $24,000 (cost $15,400) with a two-year parts and labour warranty. Based on prior experience, Western expects eventually to incur warranty costs equal to 5% of the selling price. The fiscal year coincides with the calendar year. On January 20, 2021, the customer required a service call for the tractor for repairs that were completed the same day. The cost of the repairs consisted of $406 for the materials taken from the parts inventory and $556 of labour. These were the only repairs required in 2021 for this tractor.

Required

1. On what date will the note mature?

2. How much interest expense is created by this note?

3. How much warranty expense should the company report in 2020 for this tractor?

4. How much is the warranty liability for this tractor as of December 31, 2020?

5. How much warranty expense should the company report in 2021 for this tractor?

6. How much is the warranty liability for this tractor as of December 31, 2021?

7. Show the journal entries that would be made to record (a) the note on September 17, 2020; (b) the payment of the note; (c) the sale (assume a perpetual inventory system); (d) the adjustment on December 31, 2020 to record the warranty expense; and (e) the repairs that occurred in January 2021. Ignore sales taxes.