Question

On October 29, 2016, Lobo Co. began operations by purchasing razors for resale. Lobo uses the perpetual inventory method. The razors have a 90-day warranty that requires the company to replace any nonworking razor. When a razor is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company's cost per new razor is $15 and its retail selling price is $70 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred. 2016 Nov. 11 Sold 50 razors for $3,500 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 10 razors that were returned under the warranty. 16 Sold 150 razors for $10,500 cash. 29 Replaced 20 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. 2017 Jan. 5 Sold 100 razors for $7,000 cash. 17 Replaced 25 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry. 3. How much warranty expense is reported for January 2017? Warranty expense

Answer 1

Answer-Warranty expense for January 2017 :-

$7,000*8%= $560

31-Jan	Warranty Expense	$560
	Estimated Warranty Liability		$560
	(Being warranty expense recognised)
	*$7,000 x 8% = $560