Chapter 11: Q15RQ (page 604)
How is the times-interest-earned ratio calculated, and what does it evaluate?
Short Answer
The times-interest-earned ratio is the ratio between earnings before interest & tax (EBIT) and interest expense.
Chapter 11: Q15RQ (page 604)
How is the times-interest-earned ratio calculated, and what does it evaluate?
The times-interest-earned ratio is the ratio between earnings before interest & tax (EBIT) and interest expense.
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Get started for freeAccounting for warranty expense and warranty payable
The accounting records of Sculpted Ceramics included the following at January 1, 2018:
Estimated Warranty Payable | |
5,000 Beg. Bal |
In the past, Sculpted’s warranty expense has been 9% of sales. During 2018, Sculpted made sales of \(113,000 and paid \)7,000 to satisfy warranty claims. Requirements
: O’Conner guarantees its vacuums for four years. Prior experience indicates that warranty costs will be approximately 6% of sales. Assume that O’Conner made sales totaling $200,000 during 2018. Record the warranty expense for the year.
Runner guarantees its snowmobiles for three years. Company experience indicates that warranty costs will be approximately 5% of sales. Assume that the Trail Runner dealer in Colorado Springs made sales totaling \(600,000 during 2018. The company received cash for 20% of the sales and notes receivable forthe remainder. Warranty payments totaled \)10,000 during 2018.
Requirements
Record the sales, warranty expense, and warranty payments for the company.
Ignore cost of goods sold.
Curtis Company is facing a potential lawsuit. Curtis’s lawyers think that it is reasonably possible that it will lose the lawsuit. How should Curtis report this lawsuit?
The following transactions of Jasmine Reef occurred during 2018:
Apr. 30 Reef is party to a patent infringement lawsuit of \(190,000. Reef’sattorney is certain it is remote that Reef will lose this lawsuit.
Jun. 30 Estimated warranty expense at 2% of sales of \)350,000.
Jul. 28 Warranty claims paid in the amount of \(5,500.
Sep. 30 Reef is party to a lawsuit for copyright violation of \)80,000. Reef’sattorney advises that it is probable Reef will lose this lawsuit. Theattorney estimates the loss at \(80,000.
Dec. 31 Reef estimated warranty expense on sales for the second half of the yearof \)510,000 at 2%.
Requirements
1. Journalize required transactions, if any, in Reef ’s general journal. Explanations arenot required.
2. What is the balance in Estimated Warranty Payable assuming a beginning balanceof $0?
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