Question

Required information Problem 9-4A Warranty expense and liability estimation LO P4 The following information applies to the questions displayed below.) On October 29, 2017. 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 malls a new one from Merchandise Inventory to the customer. The company's cost per new razor is $15 and its retail selling price is $60 in both 2017 and 2018. The manufacturer has advised the company to expect warranty costs to equal 5% of dollar sales. The following transactions and events occurred. 2017 Nov. 11 Sold 70 razors for $4,200 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 $12,600 cash. 29 Replaced 28 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. 2018 Jan. 5 Sold 140 razors for $8,400 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

2
Warranty expense for November 2017	210	=4200*5%
Warranty expense for December 2017	630	=12600*5%