The following transactions of Acer Downyoccurred during 2018: Apr. 30 Landing is party to a patent infringement lawsuit of $220,000. Landing' attorney is certain it is remote that Landing will lose this lawsuit.
Jun. 30 Estimated warranty expense at 2% of sales of $420,000.
Jul. 28 Warranty claims paid in the amount of $5,800.
Sep. 30 Landing is party to a lawsuit for copyright violation of $ 110,000. Landings attorney advises that it is probable Landing will lose this lawsuit. The attorney estimates the loss at $ 110,000.
Dec. 31 Landing estimated warranty expense on sales for the second half of the year of $460,000 at 2%

Required:
a. Journalize required transactions, if any, in Downy'sgeneral journal. Explanations are not required.
b. What is the balance in Estimated Warranty Payable assuming a beginning balance of $0?

Acer Downy (Landing)

1. Journal Entries:

April 30

No Journal Entries Required

Jun. 30

Debit Warranty Expense $8,400

Credit Warranty Payable $8,400

Jul. 28

Debit Warranty Payable $5,800

Credit Cash Account $5,800

Sep. 30

Debit Legal Expenses $110,000

Credit Copyright Violation Claims $110,000

Dec. 31

Debit Warranty Expense $9,200

Credit Warranty Payable $9,200

b. Balance in Estimated Warranty Payable:

Jun. 30 Warranty Expense $8,400

Jul. 28  Cash Account       ($5,800)

Dec. 31 Warranty Expense $9,200

Balance                               $11,800

Explanation:

1. Since it is estimated that it was remote for Landing to lose the case, there is allowance made for the legal consequences.  It will be disclosed in the notes that such a lawsuit was confronting Landing.

2. Warranty costs are part the costs of its selling expenses and therefore part of its SG&A expenses.  The accounting entries are to debit Warranty Expense and to credit Warranty Liability or Payable.  Warranty expenses arise from warranty claims put forward by customers for the repair or replacement of, or compensation for non-performance or underperformance of an item as provided for in its warranty document.

3. Copyright (Intellectual Property Rights) infringement or piracy is the use of works protected by copyright law without the required permission.   The violation infringes some certain exclusive rights granted to the copyright holder, such as the right to reproduce, distribute, display, etc.

4. When a liability becomes probable, there should be an allowance for it.

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