Foster Company Is Preparing Adjusting Entries at December 31

Foster Company is preparing adjusting entries at December 31. An analysis reveals the following:
1. During December, Foster Company sold 2,000 units of a product that carries a 60-day warranty. The sales for this product totaled $100,000. 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 $200,000 in damages.
3. The company has been named as one of several defendants in a $400,000 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.

Correct Answer:

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1. 2,000 units × 4% = 80 units expected ...

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