Old Hampton Company Is Preparing Adjusting Entries at December 31

question 199

Essay

Old Hampton Company is preparing adjusting entries at December 31. An analysis reveals the following:
1. During December Old Hampton Company sold 3000 units of a product that carries a 60-day warranty. The sales for this product totaled $100000. The company expects 4% of the units to need repair under the warranty and it estimates that the average repair cost per unit will be $15.
2. The company has been sued by a disgruntled employee. Legal counsel believes that it is reasonably possible that the company will have to pay $200000 in damages.
3. The company has been named as one of several defendants in a $400000 damage suit. Legal counsel believes it is unlikely that the company will have to pay any damages.
4. Employees earn vacation pay at a rate of 1 day per month. During December ten employees qualify for vacation pay. Their average daily wage is $90 per employee.
Instructions
Prepare adjusting entries if required for each of the four items.

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Definitions:

Demand for Inventoried Items

The need or desire for products or goods that are kept in stock for sale or distribution.

Reductions

Refers to decreases or cuts in quantities, capacities, workforce, costs, or other financial or operational metrics as a strategic or cost-saving measure.

Total Purchases

The aggregate amount of goods and services bought over a certain period of time.

Percentage of Sales

A financial metric or approach calculating a certain cost or investment as a proportion of sales revenue, useful in budgeting and analysis.