Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On November 10, 2016, Lee Co. began operations by purchasing coffee grinders for resale. Lee uses the perpetual inventory method. The grinders have a 60-day

On November 10, 2016, Lee Co. began operations by purchasing coffee grinders for resale. Lee uses the perpetual inventory method. The grinders have a 60-day warranty that requires the company 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 companys cost per new grinder is $24 and its retail selling price is $50 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 10% of dollar sales. The following transactions and events occurred.

2016

Nov.

16 Sold 50 grinders for $2,500 cash.

30 Recognized warranty expense related to November sales with an adjusting entry.

Dec.

12 Replaced six grinders that were returned under the warranty.

18 Sold 200 grinders for $10,000 cash.

28 Replaced 17 grinders that were returned under the warranty.

31 Recognized warranty expense related to December sales with an adjusting entry.

2017

Jan.

7 Sold 40 grinders for $2,000 cash.

21 Replaced 36 grinders that were returned under the warranty.

31 Recognized warranty expense related to January sales with an adjusting entry

Required

1. Prepare journal entries to record these transactions and adjustments for 2016 and 2017.

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

3. How much warranty expense is reported for January 2017?

4. What is the balance of the Estimated Warranty Liability account as of December 31, 2016?

5. What is the balance of the Estimated Warranty Liability account as of January 31, 2017?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting And Finance For Non Specialists

Authors: Eddie McLaney

9th Edition

1292062711, 9781292062716

More Books

Students also viewed these Accounting questions