Question

Problem 9-4A (Algo) Estimating warranty expense and liability LO P4 (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 $14 and its retail selling price is $60. The company expects warranty costs to equal 6% of dollar sales. The following transactions occurred. Nov. 11 Sold 60 razors for $3,600 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 12 razors that were returned under the warranty. 16 Sold 180 razors for $10,800 cash. 29 Replaced 24 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. Jan. 5 Sold 120 razors for $7,200 cash. 17 Replaced 29 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry.

What is the balance of the Estimated Warranty Liability account as of January 31?

Answer 1

Credit Journal entries relating to Estimated Warrenty liability Date Account titles Debit 30-Nov Warranty expense 216 Estimated Warranty liabilty Working 3600 * 6% 3600 * 6% 216 ESTIMATED WARRENTY LIABILITY ACCOUNT Date Particulars Amount Date Particulars 9-Dec Finished merchandise inventory $ 168.00 30-Nov Warrenty Expense Finished merchandise inventory $ 336.00 31-Dec Warrenty Expense 17-Jan Finished merchandise inventory $ 406.00 31-Jan Warrenty Expense 31-Jan Closing balance $ 386.00 $1,296.00 Amount $ 216.00 $ 648.00 $ 432.00 29-Dec 9-Dec 168 Estimated Warranty liabilty Finished merchandise inventory 12* 14 12 * 14 168 $1,296.00 336 29-Dec Estimated Warranty liabilty Finished merchandise inventory 24 * 14 24 * 14 336 From above ledger, Balance on estimated warranty liability is $ 386 648 31-Dec Warranty expense Estimated Warranty liabilty 10800 * 6% 10800 * 6% 648 17-Jan 406 Estimated Warranty liabilty Finished merchandise inventory 29 * 14 29 * 14 406 432 31-Jan Warranty expense Estimated Warranty liabilty 7200 * 6% 7200 * 6% 432 Please upvote if it is useful.