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The following selected transactions relate to Muscat Company which began operations in July 2011. Muscat Company's fiscal year ends on December 31. Financial statements are published in April 2012. a. No customer accounts have been shown to be uncollectible as yet, but Muscat Company estimates that 3% of credit sales will eventually prove uncollectible. Sales were $300 million (all credit) for 2011. b. Muscat Company offers a one-year warranty against manufacturer's defects for all its products. Industry experience indicates that warranty costs will approximate 2% of sales. Actual warranty expenditures were $3.5 million in 2011 and were recorded as warranty expense when incurred. c. In December 2011, Muscat Company became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the company $1.5 million. Du arking for civil penalties and

The following selected transactions relate to Muscat Company which began operations in July 2011. Muscat Company's fiscal year ends on December 31. Financial statements are published in April 2012. a. No customer accounts have been shown to be uncollectible as yet, but Muscat Company estimates that 3% of credit sales will eventually prove uncollectible. Sales were $300 million (all credit) for 2011. b. Muscat Company offers a one-year warranty against manufacturer's defects for all its products. Industry experience indicates that warranty costs will approximate 2% of sales. Actual warranty expenditures were $3.5 million in 2011 and were recorded as warranty expense when incurred. c. In December 2011, Muscat Company became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the company $1.5 million. Du arking for civil penalties and

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Prepare the appropriate journal entries that should be recorded as a result of each of these contingencies.

If no journal entry is indicated,state why?

The following selected transactions relate to Muscat Company which began operations in July 2011. Muscat Company's fiscal year ends on December 31. Financial statements are published in April 2012. a. No customer accounts have been shown to be uncollectible as yet, but Muscat Company estimates that 3% of credit sales will eventually prove uncollectible. Sales were $300 million (all credit) for 2011. b. Muscat Company offers a one-year warranty against manufacturer's defects for all its products. Industry experience indicates that warranty costs will approximate 2% of sales. Actual warranty expenditures were $3.5 million in 2011 and were recorded as warranty expense when incurred. c. In December 2011, Muscat Company became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the company $1.5 million. d. In November 2011, the Government filed suit against Muscat Company, asking for civil penalties and injunctive relief for violations of clean water laws. Muscat Company reached a settlement with state authorities to pay $4.2 million in penalties on February 3, 2012. e. Muscat Company is the plaintiff in a $40 million lawsuit filed against a customer for costs and lost profits from contracts rejected in 2011. The lawsuit is in final appeal and attorneys advise that it is virtually certain that Muscat Company will be awarded $30 million.
Transcribed Image Text:The following selected transactions relate to Muscat Company which began operations in July 2011. Muscat Company's fiscal year ends on December 31. Financial statements are published in April 2012. a. No customer accounts have been shown to be uncollectible as yet, but Muscat Company estimates that 3% of credit sales will eventually prove uncollectible. Sales were $300 million (all credit) for 2011. b. Muscat Company offers a one-year warranty against manufacturer's defects for all its products. Industry experience indicates that warranty costs will approximate 2% of sales. Actual warranty expenditures were $3.5 million in 2011 and were recorded as warranty expense when incurred. c. In December 2011, Muscat Company became aware of an engineering flaw in a product that poses a potential risk of injury. As a result, a product recall appears inevitable. This move would likely cost the company $1.5 million. d. In November 2011, the Government filed suit against Muscat Company, asking for civil penalties and injunctive relief for violations of clean water laws. Muscat Company reached a settlement with state authorities to pay $4.2 million in penalties on February 3, 2012. e. Muscat Company is the plaintiff in a $40 million lawsuit filed against a customer for costs and lost profits from contracts rejected in 2011. The lawsuit is in final appeal and attorneys advise that it is virtually certain that Muscat Company will be awarded $30 million.
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