Question

Answer each of the following are independent situations. A. Bettinghaus Corporation began business on January 2,...

Answer each of the following are independent situations.

A. Bettinghaus Corporation began business on January 2, 2019, with five employees. Its sick leave and vacation policy follow: Each employee is allowed 8 days of sick leave each year and one day of paid vacation leave for each month worked. The accrued vacation cannot be taken until the employee has been with the company 1 year. The sick leave, if not used accumulates to an 18-day maximum. The vacation leave accumulates for 5 years, but at any time the employee may request compensation in lieu of taking paid vacation leave. The company records its liability for both compensated absences on a quarterly basis. The daily gross wages for each employee are $180.

Instructions:

  1. Prepare the journal entries to record the compensated absences for the first quarter of 2019. Three sick days were used by employees in the first quarter
  2. Prepare a partial interim balance sheet showing the liability balances for compensated absences at March 31, 2019.

B. Fallon Company, a toy manufacturer that also operates several retail outlets, is preparing its December 31, 2019, financial statements. Fallon has an incinerator behind one of its retail outlets which is used to burn cardboard boxes received in shipment of inventory from suppliers. The state environmental protection agency filed suit against the company in September 2019 for air pollution. Fallon expects to stop using the incinerator and begin recycling. However, its lawyers believe that it is probable that a fine between $40,000 and $60,000 will be levied against the company, although they cannot predict the exact amount.

Instructions:

  1. Prepare the journal entry, if any on December 31, 2019 to record the information for Fallon, and explain your reasoning. In addition, explain how the situation would be disclosed in the company’s annual report.

C. Clean-All, Inc. sells washing machines with a 3-year assurance type warranty. In the past, Clean-All has found that in the year after the sale, warranty costs have been 3% of sales; in the second year after sale, 5% of sales; and in the third year after sale, 7% of sales. the following data are also available:

Year Sales Warranty Expenditures

2018 650,000 82,000

2019 700,000 85,000

Instructions:

  1. Prepare the journal entries for the preceding transactions for 2018-2019. Closing entries are not required.
  2. Determine the amount Clean-All will report as liability on December 31, 2019, assuming the liability had a balance of $101,200 on December 31, 2017.

***Show all supporting calculations***

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