The following situations relate to Bolivia Company.

1. Bolivia provides a warranty with all its products it sells. It estimates that it will sell 1,000,000 units of its product for the year ended December 31, 2017, and that its total revenue for the product will be $100,000,000. It also estimates that 60% of the product will have no defects, 30% will have major defects, and 10% will have minor defects. The cost of a minor defect is estimated to be$5 for each product sold, and the cost for a major defect cost is $15. The company also estimates that the minimum amount of warranty expense will be$2,000,000 and the maximum will be $10,000,000.
2. Bolivia is involved in a tax dispute with the tax authorities. The most likely outcome of this dispute is that Bolivia will lose and have to pay$400,000. The minimum it will lose is $20,000 and the maximum is$2,500,000.

Prepare the journal entry to record provisions, if any, for Bolivia at December 31, 2017.

Streep Factory provides a 2-year warranty with one of its products which was first sold in 2017. Streep sold $1,000,000 of products subject to the warranty. Streep expects$125,000 of warranty costs over the next 2 years. In that year, Streep spent $70,000 servicing warranty claims. Prepare Streep’s journal entry to record the sales (ignore cost of goods sold) and the December 31 adjusting entry, assuming the expenditures are inventory costs.

In a certain microwave oven on the high power setting, the time it takes a randomly chosen kernel of popcorn to pop is normally distributed with a mean of 140 seconds and a standard deviation of 25 seconds. What percentage of the kernels will fail to pop if the popcorn is cooked for (a) 2 minutes? (b) Three minutes? (c) If you wanted 95 percent of the kernels to pop, what time would you allow? (d) If you wanted 99 percent to pop?

A multiple-choice exam has 100 questions. Each question has four choices.

(a) What minimum score should be required to reduce the chance of passing by random guessing to 5 percent?

(b) To 1 percent?

(c) Find the quartiles for a guesser.

The caffeine content of a cup of home-brewed coffee is a normally distributed random variable with a mean of 115 mg with a standard deviation of 20 mg.

(b) Less than 100 mg?

(c) A very strong cup of tea has a caffeine content of 91 mg. What is the probability that a cup of coffee will have less caffeine than a very strong cup of tea? (Data are from Popular Science 254, no. 5 [May 1999], p. 95.)

No Doubt Company includes one coupon in each box of soap powder that it packs, and 10 coupons are redeemable for a premium (a kitchen utensil). In 2020, No Doubt Company purchased 8,800 premiums at 80 cents each and sold 110,000 boxes of soap powder at $3.30 per box: 44,000 coupons were presented for redemption in 2020. It is estimated that 60% of the coupons will eventually be presented for redemption.

Instructions

Prepare all the entries that would be made relative to sales of soap powder and to the premium plan in 2020.

Sycamore Candy Company offers an MP3 download (seven-single medley) as a premium for every five candy bar wrappers presented by customers together with $2.50. The candy bars are sold by the company to distributors for 30 cents each. The purchase price of each download code to the company is$2.25. In addition, it costs 50 cents to distribute each code. The results of the premium plan for the years 2017 and 2018 are as follows. (All purchases and sales are for cash.)

$$\begin{array}{lrr} &\text{\underline{\hspace{10pt}2017\hspace{10pt}}}&\text{\underline{\hspace{10pt}2018\hspace{10pt}}}\\ \text{MP3 codes purchased}&\text{250,000}&\text{330,000}\\ \text{Candy bars sold}&\text{2,895,400}&\text{2,743,600}\\ \text{Wrappers redeemed}&\text{1,200,000}&\text{1,500,000}\\ \text{2017 wrappers expected to be redeemed in 2018}&\text{290,000}\\ \text{2018 wrappers expected to be redeemed in 2019}&&\text{350,000}\\ \end{array}$$

Instructions

• a. Prepare the journal entries that should be made in 2017 and 2018 to record the transactions related to the premium plan of the Sycamore Candy Company.
• b. Indicate the account names, amounts, and classifications of the items related to the premium plan that would appear on the balance sheet and the income statement at the end of 2017 and 2018.

Fallen Company commonly issues long-term notes payable to its various lenders. Fallen has had a pretty good credit rating such that its effective borrowing rate is quite low (less than 8% on an annual basis). Fallen has elected to use the fair value option for the long-term notes issued to Barclay's Bank and has the following data related to the carrying and fair value for these notes. Any changes in fair value are due to changes in market rates, not credit risk.

$$\begin{array}{cccc} &\underline{\hspace{2pt}\text{Carrying Value}\hspace{2pt}}&\underline{\hspace{5pt}\text{Fair Value}\hspace{25pt}}\\ \text{December 31, 2020}&\$54,000&\$54,000\\ \text{December 31, 2021}&44,000&42,500\\ \text{December 31, 2022}&36,000&38,000\\ \end{array}$$

Instructions

a. Prepare the journal entry at December 31 (Fallen's year-end) for 2020, 2021, and 2022, to record the fair value option for these notes.

b. At what amount will the note be reported on Fallen's 2021 balance sheet?

c. What is the effect of recording the fair value option on these notes on Fallen's 2022 income?

d. Assuming that general market interest rates have been stable over the period, does the fair value data for the notes indicate that Fallen's creditworthiness has improved or declined in 2022? Explain.

To stimulate the sales of its Alladin breakfast cereal, Loptien Company places 1 coupon in each box. Five coupons are redeemable for a premium consisting of a children’s hand puppet. In 2018, the company purchases 40,000 puppets at $1.50 each and sells 480,000 boxes of Alladin at$3.75 a box. From its experience with other similar premium offers, the company estimates that 40% of the coupons issued will be mailed back for redemption. During 2018, 115,000 coupons are presented for redemption.

Prepare the journal entries that should be recorded in 2018 relative to the premium plan.

Mayaguez Corporation provides its officers with bonuses based on net income. For 2017, the bonuses total $350,000 and are paid on February 15, 2018. Prepare Mayaguez’s December 31, 2017, adjusting entry and the February 15, 2018, entry.

How should a debt callable by the creditor be reported in the debtor's financial statements?

Dillons Corporation made credit sales of $30,000 which are subject to 6% sales tax. The corporation also made cash sales which totaled$20,670 including the 6% sales tax. (a) Prepare the entry to record Dillons' credit sales. (b) Prepare the entry to record Dillons' cash sales.

Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 50cents. The block sets cost Wynn $1.10 each to purchase and 60cents each to mail to customers. During 2017, Wynn sold 1,200,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2017, 120,000 UPC codes were redeemed. Prepare Wynn’s December 31, 2017, adjusting entry.

768-1 Access the glossary (Master Glossary) to answer the following.

• a. What does the term “callable obligation” mean?
• b. What is an imputed interest rate?
• c. What is a long-term obligation?
• d. What is the definition of “effective-interest rate”?

Wynn Company offers a set of building blocks to customers who send in 3 UPC codes from Wynn cereal, along with 504. The block sets cost Wynn $1.10 each to purchase and 60c each to mail to customers. During 2020, Wynn sold 1,200,000 boxes of cereal. The company expects 30% of the UPC codes to be sent in. During 2020, 120,000 UPC codes were redeemed. Prepare Wynn's December 31, 2020, adjusting entry.