On August 31, 2020, The Langley Hornets Lacrosse Club sold season tickets for the upcoming season. The club sold 4,000 season tickets for $500.00 each. The Hornets play a 24-game schedule with eight games played between October and December 31, 2020 and the remainder to be played in the period from January to March 2021. The club’s year end is December 31. Prepare the journal entry to record the sale of the season tickets on August 31 and any adjusting entries required on December 31, 2020.

2. Burnaby Ltd. is involved in a pending court case. Burnaby’s lawyers believe the company will likely have to pay between $500,000 and $750,000 to the plaintiff.

Required: For each situation briefly explain the appropriate accounting treatment and how the information would be presented in the financial statements.

Part 2

Alberni Computer Company sells computers for $2,000 each, which includes a one-year warranty that requires the company to perform periodic services and to replace defective parts. During 2020, Alberni sold 500 computers on account. Based on experience, the company has estimated the total one-year warranty costs at 5% of sales revenue.

At January 1, 2020, the estimated liability for warranties was $33,000. In 2020, Alberni Computers spent $62,000 servicing the computers under warranty. Required:

1. Prepare the journal entries for 2020.

2. What is the balance in the estimated liability for warranties account at December 31, 2020?

3. Explain, conceptually, why companies are required to estimate and record warranty expense.

Answer rating: 100% (QA)

Solution PART 1 Answer 1 Journal Entries Date Particulars Debit Credit August 31 2020 Cash 2000000 Unearned Sales Revenue 2000000 4000 x 500 Date Particulars Debit Credit December 31 2020 Unearned Sal... View the full answer