Question

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 $13 and its retail selling price is $80 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 80 razors for $6,400 cash.
		30		Recognized warranty expense related to November sales with an adjusting entry.
Dec.		9		Replaced 16 razors that were returned under the warranty.
		16		Sold 240 razors for $19,200 cash.
		29		Replaced 32 razors that were returned under the warranty.
		31		Recognized warranty expense related to December sales with an adjusting entry.

2017

Jan.		5		Sold 160 razors for $12,800 cash.
		17		Replaced 37 razors that were returned under the warranty.
		31		Recognized warranty expense related to January sales with an adjusting entry.

2. How much warranty expense is reported for November 2016 and for December 2016?
  

Answer 1

Lobo Co Journal Enteries Date Particulars 11.11.2016 Cash a/c Debit in $ Credit in $ Dr. 6400 To Sales 6400 (Razors sold for cash 30.11.2016 Waranty Exp a/c Dr. 384 To Estimated Waranty Liabilit 384 To record warranty expense) 6400 x 6% 9.12.2016 Estimated Waranty Liability a/c Dr 208 To Cash 208 (Replaced 16 razors ) 16 x 13-208 16.12.2016 Cash a/c Dr. 19200 To Sales 19200 (Razors sold for cash 29.12.2016 Estimated Waranty Liability a/c Dr 416 To Cash 416 (Replaced 32 razors) 32 x 13 416 31.12.2016 Waranty Exp a/c Dr. 1152 To Estimated Waranty Liabilit 1152 (To record warranty expense) 19200 x 6%-1152 5.1.2017 Cash a/c Dr. 12800 To Sales 12800 (Razors sold for cash 17.1.2017Estimated Waranty Liability a/c Dr 481 To Cash 481 (Replaced 37 razors) 37 x 13 481 31.12.2017 Waranty Exp a/c Dr. 768 To Estimated Waranty Liabilit 768 To record warranty expense) 12800 x 6%-768 2. How much warranty expense is reported for November 2016 and fo December 2016? Waranty Expenses for Nov 2016 Waranty Expenses for Dec 2016 1152 1536