Times are tough but the local manufacturer, Daisy Lane Kitchen Linens, where you were recently hired to

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Question:

Times are tough but the local manufacturer, Daisy Lane Kitchen Linens, where you were recently hired to help in preparing the August 31, 2020 year-end financial statements, is weathering the economic storm. While reviewing the accounts, you noticed the following issues.

1.1 Back in February 2019, the previous fiscal year, a commercial client sued the company for loss of business due to the late delivery of a seasonal order. Now this year, in January 2020, Daisy Lane settled the suit for $45,000 cash and recorded a debit to “Contract litigation loss”. No previous entries had been recorded in the books relative to this case because, even though Daisy Lane was clearly and obviously at fault, the company was disputing the amount.

1.2 Utilities payable of $2,000 on at the end of last year, August 31, 2019 had not been recorded at that time but instead had only been recorded as an expense when the invoice was paid in at the start of the current fiscal year, September 2019.

1.3 Last year, in early 2019, Daisy Lane started offering a 5-year warranty on its premium apron product. Because this warranty program is new and initial estimates of the costs were expected to be immaterial, Daisy Lane did not accrue any provisions to account for these costs but now as some claims have been made, the company estimates that the costs will be about 2% of sales on this particular product. Sales in the last year, were $4,950 and $9,865 for this year. So far, $85 in claims have been recorded as an expense.

1.4 In April 2020, the company started selling gift items directly to end consumers online. So far in these past five months, the company has recorded $15,176 entirely as sales revenue even though this amount represents the total for sales AND 7% PST AND 5% GST.

1.5 A commercial client made a non-refundable $2,500 deposit to the company mid-June to commission a limited production of novelty aprons that is to be ready and delivered in early December. The company recorded this transaction with a credit to sales revenue.

1.6 On September 6th, 2020, a power outage caused a loss of $28,000 in inventory. Insurance will cover all but $1,500 of this loss.

Required

Prepare the journal entry(ies) to record the August 31, 2020 year-end adjustments and corrections in the accounting records in preparation for the financial statements, assuming that the accounting records for 2020 are not yet closed. Ignore income tax. If a particular event does not require an entry in the 2020 books, explain why.