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project-1.5

The document provides instructions for completing Project 1.5 Journal Entries for Contingencies, including a balance sheet for Illini Company as of December 31, 20X0. It outlines the company's current assets, liabilities, and shareholders' equity, as well as details regarding warranty expenses and liabilities for the years 20X1 and 20X2. The project requires students to fill in specific journal entries related to estimated warranty costs based on sales data.

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14 views

project-1.5

The document provides instructions for completing Project 1.5 Journal Entries for Contingencies, including a balance sheet for Illini Company as of December 31, 20X0. It outlines the company's current assets, liabilities, and shareholders' equity, as well as details regarding warranty expenses and liabilities for the years 20X1 and 20X2. The project requires students to fill in specific journal entries related to estimated warranty costs based on sales data.

Uploaded by

sarth.u
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Instructions for Project 1.

5 Journal Entries
for Contingencies
Project Instructions
 Please read the following instructions and review the table carefully. Then, enter answers for
journal items ([A] to [L] in the next item in this Lesson, called Project 1.5 Journal Entries for
Contingencies.
 You may keep these instructions open in a separate browser or download the instructions, and
open it as you work through the exercise.
 For specific layout of the balance sheet, please refer to the file below.

The Balance Sheet of the Illini as of 12/31/20X0:

Illini Company, Inc.


Balance Sheet
as of 12/31/20X0

Assets
Current Assets:
Cash $1,500,000
Accounts receivable, net 18,000
Inventory 50,000
Total current assets 1,568,000
Equipment 90,000
Goodwill 20,000
Total assets $1,678,000

Liabilities and shareholders' equity

Shareholders' equity:
Common stock, 20,000 shares
outstanding, $1 par $20,000
Additional paid-in capital 280,000
Retained earnings 1,378,000
Total shareholders' equity 1,678,000

1
Financial Reporting Capstone, University of Illinois at Urbana-Champaign, Dept of Accountancy
Total liabilities and shareholders'
equity $1,678,000

 Note that all additional paid-in capital (APIC) sub accounts (e.g., APIC-options and APIC-
treasury stock), if any, are tracked in the “Additional paid-in capital” account on the Balance
Sheet.

Project 1.5 Topic: Contingencies


 Illini provides a one-year warranty for one of its products. Based on industry experience, the
estimated total warranty costs are 6% of sales. Sales of the product in 20X1 and 20X2
are $350,000 and $400,000, respectively. Actual warranty claims in 20X1 and 20X2 are $10,000
and $30,000, respectively. Out of the $30,000 claims in 20X2, $12,000 is related to the 20X1 sale.

Project 1.5 Balance Sheet


Date Account Name Debit Credit
20X1 Warranty expense [A]
Estimated warranty liability - 20X1 [B]

Estimated warranty liability - 20X1 [C]


Cash [D]

20X2 Estimated warranty liability - 20X1 [E]


Cash [F]

20X2 To make up the under-estimation of warranty expense in 20X1:


Warranty expense [G]
Cash [H]

20X2 Warranty expense [I]


Estimated warranty liability - 20X2 [J]

20X2 Estimated warranty liability - 20X2 [K]


Cash [L]

2
Financial Reporting Capstone, University of Illinois at Urbana-Champaign, Dept of Accountancy

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