Question

On October 29, 2017 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 $15 and its retail selling price is $60 in both 2017 and 2018. The manufacturer has advised the company to expect warranty costs to equal 5% of dollar sales. The following transactions and events occurred. 2017 Nov. 11 Sold 70 razors for $4,200 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 14 razors that were returned under the warranty. 16 Sold 210 razors for $12,600 cash. 29 Replaced 28 razors that were returned under the warrinty. 31 Recognized warranty expense related to December sales with an adjusting entry. 2018 Jan. 5 Sold 140 razors for $8,400 cash. 17 Replaced 33 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry.

Answer 1

1a
Date	General Journal	Debit	Credit
11-Nov	Cash	4,200
	Sales		4,200
11-Nov	Cost of goods sold	1050		=70*15
	Merchandise inventory		1,050
30-Nov	Warranty expense	210		=4200*5%
	Estimated warranty liability		210
9-Dec	Estimated warranty liability	210		=14*15
	Merchandise inventory		210
16-Dec	Cash	12,600
	Sales		12,600
16-Dec	Cost of goods sold	3,150		=210*15
	Merchandise inventory		3,150
29-Dec	Estimated warranty liability	420		=28*15
	Merchandise inventory		420
31-Dec	Warranty expense	630		=12600*5%
	Estimated warranty liability		630
1b
Date	General Journal	Debit	Credit
5-Jan	Cash	8,400
	Sales		8,400
5-Jan	Cost of goods sold	2,100		=140*15
	Merchandise inventory		2,100
17-Jan	Estimated warranty liability	495		=33*15
	Merchandise inventory		495
31-Jan	Warranty expense	420		=8400*5%
	Estimated warranty liability		420