Reference no: EM132942314
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 $16 and its retail selling price is $80. The company expects warranty costs to equal 8% of dollar sales.
The following transactions occurred.
Nov.
11 Sold 60 razors for $4,800 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 $14,400 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 $9,600 cash.
17 Replaced 29 razors that were returned under the warranty.
31 Recognized warranty expense related to January sales with an adjusting entry.
Problem 1: Prepare journal entries to record above transactions and adjustments.
Problem 2: How much warranty expense is reported for November and December?
Problem 3: How much warranty expense is reported for January?
Problem 4: What is the balance of the Estimated Warranty Liability account as of December 31?
Problem 5: What is the balance of the Estimated Warranty Liability account as of January 31?
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