Questions: Listed below are a few transactions and events of Maxum Company. 1. Employees earn vacation pay at a rate of one day per month. Maxum estimated and must expense 7,360 of accrued vacation benefits for the year. 2. During December, Maxum Company sold 3,600 units of a product that carries a 60-day warranty. December sales for this product total 127,000. The company expects 6% of the units to need warranty repairs, and it estimates the average repair cost per unit will be 19. Prepare adjusting entries at December 31 for Maxum Company's year-end financial statements for each of the above separate transactions.

To prepare the adjusting entries for Maxum Company's year-end financial statements, we need to record the accrued vacation benefits and the estimated warranty expense.

1. Accrued Vacation Benefits:
   • Employees earn vacation pay at a rate of one day per month.
   • Maxum estimated and must expense $7,360 of accrued vacation benefits for the year.

Journal Entry: \begin{tabular}{|c|c|c|c|} \hline S.No/Date & Account Title & Debit & Credit \\ \hline 1 & Vacation Expense & \$7,360 & \\ \hline & Vacation Payable & & \$7,360 \\ \hline \end{tabular}

2. Warranty Expense:
   • During December, Maxum Company sold 3,600 units of a product that carries a 60-day warranty.
   • December sales for this product total $127,000.
   • The company expects 6% of the units to need warranty repairs.
   • It estimates the average repair cost per unit will be $19.

Calculation:

• Number of units expected to need repairs: \( 3,600 \times 0.06 = 216 \) units
• Estimated repair cost per unit: $19
• Total estimated warranty expense: \( 216 \times 19 = \$4,104 \)

Journal Entry: \begin{tabular}{|c|c|c|c|} \hline S.No/Date & Account Title & Debit & Credit \\ \hline 2 & Warranty Expense & \$4,104 & \\ \hline & Warranty Liability & & \$4,104 \\ \hline \end{tabular}

The adjusting entries for Maxum Company's year-end financial statements are as follows:

1. Accrued Vacation Benefits: \begin{tabular}{|c|c|c|c|} \hline S.No/Date & Account Title & Debit & Credit \\ \hline 1 & Vacation Expense & \$7,360 & \\ \hline & Vacation Payable & & \$7,360 \\ \hline \end{tabular}

2. Warranty Expense: \begin{tabular}{|c|c|c|c|} \hline S.No/Date & Account Title & Debit & Credit \\ \hline 2 & Warranty Expense & \$4,104 & \\ \hline & Warranty Liability & & \$4,104 \\ \hline \end{tabular}

These entries ensure that the expenses and liabilities are accurately reflected in the financial statements for the year.