On November 10, 2004, Byung Co. began operations by purchasing coffee grinders for resale. Byung uses the perpetual inventory method. The grinders have a 60-day warranty that requires the com¬ pany to replace any nonworking grinder. When a grinder is returned, the company discards it and mails a new one from Merchandise Inventory to the customer. The company’s cost per new grinder is $14 and its retail selling price is $35 in both 2004 and 2005. The manufacturer has advised the company to expect warranty costs to equal 10% of dollar sales. The following transactions and events occurred.

Required 1. Prepare journal entries to record these transactions and adjustments for 2004 and 2005.
2. How much warranty expense is reported for November 2004 and for December 2004?
3. How much warranty expense is reported for January 2005?
4. What is the balance of the Estimated Warranty Liability account as of December 31, 2004?
5. What is the balance of the Estimated Warranty Liability account as of January 31, 2005?

Transcribed Image Text:

2004 Nov. 16 Sold 50 grinders for $1,750 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 12 Replaced six grinders that were returned under the warranty. 2005 18 Sold 150 grinders for $5,250 cash. 28 Replaced 17 grinders that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. Jan. 7 Sold 60 grinders for $2,100 cash. 21 Replaced 38 grinders that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry.