Question

Required information The following information applies to the questions displayed below.) 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 $13 and its retail selling price is $80 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 7% of dollar sales. The following transactions and events occurred. 2016 Nov. 11 Sold 70 razors for $5,600 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 14 razors that were returned under the warranty. 16 Sold 210 razors for $16.800 cash. 29 Replaced 28 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. 2017 Jan. 5 Sold 140 razors for $11,200 cash. 17 Replaced 33 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry.

Answer 1

Journal Entries for 2016 :-

Date	Particulars	Debit ($)	Credit ($)
Nov 11	Cash	$ 5,600
	To Sale		$ 5,600
Nov. 11, 2014	Cost of Goods Sold	$ 910
	To Inventory (70 * $ 13)		$ 910
Nov. 30	Warranty Expenses ($5,600 * 7%)	$ 392
	To Warranty Liability		$ 392
Dec. 9	Warranty Liability (14 * $ 13)	$ 182
	To Inventory		$ 182
Dec. 16	Cash	$ 16,800
	To Sales		$ 16,800
Dec. 16	Cost of Goods Sold	$ 2,730
	To Inventory ( 210 * $ 13)		$ 2,730
Dec. 29	Warranty Liability (28 * $13)	$ 364
	To Inventory		$ 364
Dec. 31	Warranty Expenses ($16,800*7%)	$ 1,176
	To Warranty Liability		$ 1,176

1.2 Journal Entries for 2017 :-

Date	Particulars	Debit ($)	Credit ($)
Jan 5	Cash	$ 11,200
	To Sales		$ 11,200
Jan 5	Cost of goods sold (140 * $ 13)	$ 1,820
	To Inventory		$ 1,820
Jan 17	Warranty Liability (33 * $ 13)	$ 429
	To Inventory		$ 429
Jan 31	Warranty Expenses (11,200 * 7%)	$ 784
	To Warranty Liability		$ 784

2)a. Warranty Expenses for Nov. 2016 :-

= $5,600 * 7%

= $392

2)b. Warranty Expenses for Dec. 2016 :-

= $16,800 * 7%

= $ 1,176

3). Warranty Expenses for Jan. 2017 :-

= $11,200 * 7%

= $ 784

4). Estimated Warranty Liability Account as on Dec. 31, 2016 :-

= $ 392 + $1,176 - $182 - $364

= $1,568 - $546

= $1,022

5). Estimated Warranty liability account as on Jan. 31, 2017:-

= $ 1,022 + $ 784 - $ 429

= $ 1,377