Homework SourseOn October 29 2016 Lobo Co began operations by purchasing ra
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
2017
1.1 Prepare journal entries to record above transactions and adjustments for 2016.
ow much warranty expense is reported for November 2016 and for December 2016?
How much warranty expense is reported for January 2017?
What is the balance of the Estimated Warranty Liability account as of December 31, 2016
What is the balance of the Estimated Warranty Liability account as of January 31, 2017?
| Nov. | 11 | 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. |
Solution
much warranty expense is reported for November 2016 and for December 2016?
How much warranty expense is reported for January 2017
Warranty expense for November 2016 = 630
Warranty expense for December 2016 = 1320
Warranty expense for January 2017 = 900
What is the balance of the Estimated Warranty Liability account as of December 31, 2016
Answer = 1050
What is the balance of the Estimated Warranty Liability account as of January 31, 2017?
Answer = 950
| Date | General Jounal | Debit | credit |
| 2016 | |||
| Nov. 11 | Cash | 7875 | |
| Sales | 7875 | ||
| Nov 11 | Cost of goods sold | 2100 | |
| Merchandise inventory | 2100 | ||
| Nov 30 | warranty expense | 630 | |
| Estimated warranty liability | 630 | ||
| Dec 09 | Estimated warranty liability | 300 | |
| merchandise inventory | 300 | ||
| Dec 16 | Cash | 16500 | |
| sales | 16500 | ||
| Dec 16 | Cost of gods sold | 4400 | |
| Merchandise inventory | 4400 | ||
| Dec 29 | Estimated warranty liability | 600 | |
| Merchandise inventory | 600 | ||
| Dec 31 | Warranty expense | 1320 | |
| Estimated warranty liability | 1320 |
