# Preparing Journal Entries for Hawn and Larson Companies

1) During 2006, Hawn Co. introduced a new line of machines that carry a three-year warranty against manufacturer’s defects. Based on industry experience, warranty costs are estimated at 2% of sales in the year of sale, 4% in the year after sale, and 6% in the second year after sale. Sales and actual warranty expenditures for the first three-year period were as follows:
Sales Actual Warranty Expenditures
2006 \$ 400,000 \$ 6,000
2007 1,100,000 30,000
2008 1,400,000 90,000
\$2,900,000 \$126,000

What amount should Hawn report as a liability at December 31, 2008? Assume that the unused liability remains on the books.

2) Larson Company incurred payroll of \$1,020,000. Of that amount, \$210,000 represents wages in excess of \$90,000 per employee. Of that amount, \$750,000 represents amounts paid in excess of \$7,000 per employee. Income taxes were withheld in the amount of \$315,000. State unemployment tax is 1.2% and federal unemployment tax is .8%. FICA tax is 7.65 on wages up to \$90,000 and 1.45% in excess of \$90,000 per employee.

a. Prepare the journal entry to record the wages and withholding taxes
b. Prepare the journal entry to record the employer payroll taxes.
c. Prepare the journal entry to record payment of payroll and payroll taxes

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