PA7. Emperor Pool Services provides pool cleaning and maintenance services to residential clients. It offers a one-year warranty on all services. Review each of the transactions, and prepare any necessary journal entries for each situation.

26. March 31: Emperor provides cleaning services for fifteen pools during the month of March at a sales price per pool of $550 cash. Emperor records warranty estimates when sales are recognized and bases warranty estimates on 2% of sales.

27. April 5: A customer files a warranty claim that Emperor honors in the amount of $100 cash.

28. April 13: Another customer, J. Jones, files a warranty claim that Emperor does not honor due to customer negligence.

29. June 8: J. Jones files a lawsuit requesting damages related to the dishonored warranty in the amount of $1,500. Emperor determines that the lawsuit is likely to end in the plaintiffs favor and the $1,500 is a reasonable estimate for damages.

PA8. Serene Company purchases fountains for its inventory from Kirkland Inc. The following transactions take place during the current year.

30. On July 3, the company purchases thirty fountains for $1,200 per fountain, on credit. Terms of the purchase are 2/10, n/30, invoice dated July 3.

31. On August 3, Serene does not pay the amount due and renegotiates with Kirkland. Kirkland agrees to convert the debt owed into a short-term note, with an 8% annual interest rate, payable in two months from August 3.

32. On October 3, Serene Company pays its account in full.