Below are selected transactions of Lemonade Ltd, a public company, for 2020: 1. On January 1, 2020,
Question:
Below are selected transactions of Lemonade Ltd, a public company, for 2020:
1. On January 1, 2020, the company sold $250,000 of products, all of which carried a two-year warranty (included in the price). If the two-year warranty was sold separately, it was estimated that 6% of the selling price represented the warranty portion. Actual warranty costs were $2,100 in Year 4. 60% of the revenue would be earned in the first year and the balance being recognized in the second year. The company uses service-type warranty (revenue-based).
2. On May 10, the company purchased goods from Jack Corp. for $30,000, terms 2/15, net 30. Lemonade uses the periodic inventory system. The invoice was paid on May 22.
3. On June 1, the company purchased equipment for $90,000 from Songbird Ltd., paying $30,000 in cash and issuing a one-year, 7% note for the balance.
4. On October 1, the company borrowed money from the Teekay Bank by signing a one year, zero-interest-bearing note for $90,000. The market rate for a similar note is 7%.
5. On November 1, Lemonade purchased new furniture for $20,000 on account. The furniture has a useful life of 10 years and the company uses straight-line depreciation.
Required:
(a) Prepare the journal entries necessary to record the transactions above using appropriate dates.
(b) Prepare the adjusting entries necessary at year end, December 31, Year 4 related to the above transactions. Round to the nearest dollar.
Expert Answer:
