Question

Tequired information The following information applies to the questions displayed below] 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 $14 and its retail selling price is $80. The company expects warranty costs to equal 9% of dollar sales. The following transactions occurred. Nov. 11 Sold 89 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 urider 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. 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 and December? Warranty expense for November Warranty expense for December

Answer 1

2	Warranty expense to be recognized in Nov=Dollar sales*9%=6400*9%=$ 576
	Warranty expense to be recognized in Dec=Dollar sales*9%=19200*9%=$ 1728
3	Warranty expense to be recognized in Jan=Dollar sales*9%=12800*9%=$ 1152
4	Estimated warranty liability as of December 31:
					$
	Expense recognized in Nov				576
	Expense recognized in Dec				1728
					2304
	Less:
	Cost of razors replaced			(16+32)*14	672
	Estimated warranty liability				1632
5	Estimated warranty liability as of January 31:
					$
	Beginning balance				1632
	Expense recognized in Jan				1152
					2784
	Less:
	Cost of razors replaced			(37*14)	518
	Estimated warranty liability				2266
1	Times interest earned=Income before interest/Interest expense
				Miller company	Weaver company
	Income before interest		a	220000	440000
	Interest expense		b	66000	286000
	Times interest earned		a/b	3.33	1.54