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 $13 and its retail selling price is $90 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 $6,300 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 $18,900 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 $12,600 cash.
		17		Replaced 33 razors that were returned under the warranty.
		31		Recognized warranty expense related to January sales with an adjusting entry.

1.1 Prepare journal entries to record above transactions and adjustments for 2016.
Nov 11 - Record the sales revenue of 70 razors for $6,300 cash.
Nov 11 - Record the cost of goods sold for 70 razors.
Nov 30 - Record the estimated warranty expense at 7% of November sales.
Dec 9 - Record the replacement of 14 razors that were returned under the warranty.
Dec 16 - Record the sales revenue of 210 razors for $18,900 cash.
Dec 16 - Record the cost of goods sold for 210 razors.
Dec 29 - Record the replacement of 28 razors that were returned under the warranty.
Dec 31 - Record the estimated warranty expense at 7% of December sales.

Date General Journal Debit Credit Nov 11

1.2 Prepare journal entries to record above transactions and adjustments for 2017.
Jan 5 - Record the sales revenue of 140 razors for $12,600 cash.
Jan 5 - Record the cost of goods sold for 140 razors.
Jan 17 - Record the replacement of 33 razors that were returned under the warranty.
Jan 31 - Record the adjusting entry for warranty expense for the month of January 2017.

Answer 1

Date	General Journal	Debit	Credit
2016
Nov 11	Cash	6,300
	Sales revenue		6,300
	(To record Sales revenue on cash.)
Nov 11	Cost of Goods Sold	910
	Merchandise inventory		910
	(To record cost of goods sold.) (70*13)
Nov 30	Warranty expense	441
	Estimated warranty liability		441
	(To record warranty expense.) (6300*7%)
Dec 9	Estimated warranty liability	182
	Merchandise inventory		182
	(To record warranty Claims.) (14*13)
Dec 16	Cash	18,900
	Sales revenue		18,900
	(To record Sales revenue on cash.)
Dec 16	Cost of Goods Sold	2,730
	Merchandise inventory		2,730
	(To record cost of goods sold.) (210*13)
Dec 29	Estimated warranty liability	364
	Merchandise inventory		364
	(To record warranty Claims.) (28*13)
Dec 31	Warranty expense	1,323
	Estimated warranty liability		1,323
	(To record warranty expense.) (18900*7%)
Date	General Journal	Debit	Credit
Jan 5	Cash	12,600
	Sales revenue		12,600
	(To record Sales revenue on cash.)
Jan 5	Cost of Goods Sold	1,820
	Merchandise inventory		1,820
	(To record cost of goods sold.) (140*13)
Jan 17	Estimated warranty liability	429
	Merchandise inventory		429
	(To record warranty Claims.) (33*13)
Jan 31	Warranty expense	882
	Estimated warranty liability		882
	(To record warranty expense.) (12600*7%)