Warranty work was completed for a customer. The parts to fix the product cost $2,750 and the labour was $1,550 which was paid in cash. May 1 Borrowed $12,500 from TD Bank by issuing a promissory note promising to pay the bank the principal of the loan plus 6% interest on April 30, 2023. 

Required: 

1. Prepare the above journal entries. 

2. Prepare the journal entry on December 31, 2022 to estimate warranties. The company estimates that 5% of the number of products sold are defective and it costs on average $4,000 to fix a product. For the 2022 fiscal period, the number of products sold was 100. 

3. Assuming the company had a warranty liability balance of $6,000 as of January 1, 2022, what is the balance of this account on December 31, 2022. 

4. Prepare the journal entry to accrue the interest on the promissory note on December 31, 2022. 

5. Prepare the journal entry to record the payment of the note on April 30, 2023

Answer rating: 100% (QA)

1 Journal Entries May 1 Dr Cash 12500 Cr Bank Loan Payable 12500 2 Journal En... View the full answer