Question

! Required information [The following information applies to the questions displayed below 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 70 razors for $4,900 cash. 30 Recognized warranty expense related to November sales with an 9 Replaced 14 razors that vere 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. adjusting entry Dec. 2017 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 vith an adjusting entry Jan. 1.1 Prepare journal entries to record above transactions and adjustments for 2016 View journal entry worksheet View transaction list No Date General Journal Debit Credit Cash Nov 11 1 4,900 Sales 4,900 Cost of goods sold Νov 1 1,120 Merchandise inventory 1,120 3 Νov 30 Warranty expense 294 of 23 Prev 10 11 12 Next > 14

Answer 1

Ans. 1.1 Journal entries

No.	Date	General Journal	Debit	Credit
	2016		$	$
1	11-Nov	Cash	4,900
		Sales		4,900
2	11-Nov	Cost of goods sold	1,120
		Merchandise Inventory		1,120
		(16 x 70)
3	30-Nov	Warranty Expense	294
		Estimated Warranty Liability		294
		(6% of 4,900)
4	9-Dec	Estimated Warranty Liability	224
		Merchandise Inventory		224
		(14 x 16)
5	16-Dec	Cash	14,700
		Sales		14,700
6	16-Dec	Cost of goods sold	3,360
		Merchandise Inventory		3,360
		(16 x 210)
7	29-Dec	Estimated Warranty Liability	448
		Merchandise Inventory		448
		(28 x 16)
8	31-Dec	Warranty Expense	882
		Estimated Warranty Liability (6% of 14,700)		882

Ans. 1.2 Journal entries

No.	Date	General Journal	Debit	Credit
	2017		$	$
1	5-Jan	Cash	9800
		Sales		9800
	5-Jan	Cost of goods sold	2240
		Merchandise Inventory		2240
		(140 x 16)
	17-Dec	Estimated Warranty Liability	528
		Merchandise Inventory		528
		(33 x 16)
	31-Dec	Warranty Expense	588
		Estimated Warranty Liability		588
		(6% of 9800)