12 Victory Auto Sales a used car dealership offers a oneyear

12) Victory Auto Sales, a used car dealership, offers a one-year or 12,000 mile warranty covering parts on all vehicles it sells, The dealer\'s experience shows that warranty expense average about3%ofa car selling price. During July,Victory sold Tears for at tal f $105.000. The entry to record the estimated expense and liability related to its July sales is: 12) A) Debit Warranty Expense $450; credit Estimated Warranty Liability $450. B) Debit Warranty Expense $3,150; credit Estimated Warranty Liability $3,150. C) Debit Sales $450; credit Estimated Warranty Liability $450 D) Debit Warranty Expense $3,150; credit Sales $3,150. E) Debit Sales Returns and Allowances $22,050; credit Parts Inventory $22,050. 13 13) A bond sells at a discount when the: A) Contract rate is above the market rate. B) Contract rate is equal to the market rate C) Bond has a short-term life. D) Contract rate is below the market rate. E) Bond pays interest only once a year. 14) Morgan Company issues 99, 20-year bonds with a par value of $750,000 that pay interest semi-annually The current market rate63%, he imount ofinterest owed to the bondholders for each semiannual interest payment is: 14) A) S33,750 B) $375,000. C) $60,000. D) $67,500. E) $30,000. TRUE/FALSE. Write \'T if the statement is true and \'F\' if the statement is false. 15) One of the similarities of bond and equity financing is that both interest and equity payments are tax deductible, 15

Solution

12)

Warranty liability estimated = 105000 * 3% = $3150

Journal entry:

Warranty Expense A/c Dr $3150

To Estimated Warranty liability A/c $3150

13) A bond Sell at a discount when the :-

D) Contract rate is below the market rate.

14) The amount of Interest Owed to bondholders is the at the rate of 9%

Interest Owed = $750000X9%/2= $33750

hence, A) $33750 is correct answer.

15) False