Question

Required information Problem 11-4A Warranty expense and liability estimation LO P4 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 $20 and its retail selling price is $75 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred. 2016 Nov. Sold 105 razors for $7, 875 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 15 razors that were returned under the warranty 16 Sold 220 razors for $16, 500 cash. 29 Replaced 30 razors that were returned under the warranty, 31 Recognized warranty expense related to December sales with an adjusting entry 2017 Jan. 5 Sold 150 razors for $11,250 cash 17 Replaced 50 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry.

Answer 1

1.1
Date	General Journal	Debit	Credit
11-Nov	Cash	7,875
	Sales		7,875
11-Nov	Cost of goods sold	2100		=105*20
	Merchandise inventory		2,100
30-Nov	Warranty expense	630		=7875*8%
	Estimated warranty liability		630
9-Dec	Estimated warranty liability	300		=15*20
	Merchandise inventory		300
16-Dec	Cash	16,500
	Sales		16,500
16-Dec	Cost of goods sold	4,400		=220*20
	Merchandise inventory		4,400
29-Dec	Estimated warranty liability	600		=30*20
	Merchandise inventory		600
31-Dec	Warranty expense	1,320		=16500*8%
	Estimated warranty liability		1,320
1.2
Date	General Journal	Debit	Credit
5-Jan	Cash	11,250
	Sales		11,250
5-Jan	Cost of goods sold	3,000		=150*20
	Merchandise inventory		3,000
17-Jan	Estimated warranty liability	1000		=50*20
	Merchandise inventory		1,000
31-Jan	Warranty expense	900		=11250*8%
	Estimated warranty liability		900