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 $16 and its retail selling price is $70 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 6% 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. 11 Prepare journal entries to record above transactions and adjustments for 2016. View transaction list Journal entry worksheet 2 3 4 5 6 7 8 Record the sales revenue of 50 razors for $3,500 cash.

Answer 1

1.1 -- Prepare journal entries to record above transactions and adjustments for 2016.

Answer -

Date	General Journal	Debit ($)	Credit($)
Nov. 11	Cash [50 razors * $70] Sales	3500 -	- 3500
Nov. 11	Cost of goods sold [50 razors * $16] Merchandise inventory	800 -	- 800
Nov. 30	Warranty expense [$3500 * 6%] Estimated warranty liability	210 -	- 210
Dec. 09	Estimated warranty liability [10 razors * $16] Merchandise inventory	160 -	- 160
Dec. 16	Cash [150 razors * $70] Sales	10500 -	- 10500
Dec. 16	Cost of goods sold [150 razors * $16] Merchandise inventory	2400 -	- 2400
Dec. 29	Estimated warranty liability [20 razors * $16] Merchandise inventory	320 -	- 320
Dec. 31	Warranty expense [$10500 * 6%] Estimated warranty liability	630 -	- 630