Question

Required information [The following information applies to the questions displayed below.] On October 29, Lobo Co. began operations by purchasing razors for resale. The razors have a 90-day warranty. 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. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. Nov. 11 Sold 70 razors for $4,900 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 $14,700 cash. 29 Replaced 28 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. Jan. 5 Sold 140 razors for $9,800 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

1.1
Date	General Journal	Debit	Credit
11-Nov	Cash	4,900
	Sales		4,900
11-Nov	Cost of goods sold	1050		=70*15
	Merchandise inventory		1,050
30-Nov	Warranty expense	392		=4900*8%
	Estimated warranty liability		392
9-Dec	Estimated warranty liability	210		=14*15
	Merchandise inventory		210
16-Dec	Cash	14,700
	Sales		14,700
16-Dec	Cost of goods sold	3,150		=210*15
	Merchandise inventory		3,150
29-Dec	Estimated warranty liability	420		=28*15
	Merchandise inventory		420
31-Dec	Warranty expense	1,176		=14700*8%
	Estimated warranty liability		1,176
1.2
Date	General Journal	Debit	Credit
5-Jan	Cash	9,800
	Sales		9,800
5-Jan	Cost of goods sold	2,100		=140*15
	Merchandise inventory		2,100
17-Jan	Estimated warranty liability	495		=33*15
	Merchandise inventory		495
31-Jan	Warranty expense	784		=9800*8%
	Estimated warranty liability		784
2
	Warranty expense for November	392		=4900*8%
	Warranty expense for December	1176		=14700*8%
3	Warranty expense	784		=9800*8%
4
	Warranty expense for November	392
	Warranty expense for December	1176
	Less: Cost of replacements	-630		=(14+28)*15
	Estimated Warranty Liability balance	938
5	Estimated Warranty Liability balance, beginning	938
	Warranty expense for January	784
	Less: Cost of replacements	-495		=33*15
	Estimated Warranty Liability balance	1227