Selected accounts (before adjustment) of Kornet Company on December 31, 2021, are shown below:
Accounts Amounts
1. Notes Payable $10,000
2. Allowance for Doubtful Accounts 2,000 (Credit)
3. Warranty Liability 5,000
4. Unearned Revenue 25,000 (related to future services)
5. Accounts Receivable 50,000
Kornet Company is a public company.
Additional Information:
1. The company estimates that 6% of the accounts receivable balance will become uncollectible.
2. The warranty liability for outstanding warranties is estimated to be $12,000 on December 31, 2021.
3. Forty percent (40%) of the unearned revenue has been earned as of December 31, 2021.
4. Notes payable: There is $2,000 due in 2022. The remaining balance is due in 2024.
5. A lawsuit has been filed against Kornet Company. Legal counsel believes that it is probable that
Kornet will lose the lawsuit and estimates that an amount of $1,000,000 will have to paid.
Instructions:
Prepare the necessary journal entries for each of the above additional information items on December 31, 2021. If no journal entry is necessary, state how the item would be treated.
