On November 10, Lee Co. began operations by purchasing coffee grinders for resale. The grinders have a 60-day warranty. When a grinder is returned, the company discards it and mails a new one from merchan- dise inventory to the customer. The companys cost per new grinder is $24 and its retail selling price is $50. The company expects warranty costs to equal 10% of dollar sales. The following transactions occurred.

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.

Check (1) Cr. Salaries Payable, $42,716.50

(2) Dr. Payroll Taxes Expense, $7,780.50

Problem 11-3B

Payroll expenses, withholdings, and taxes

P2 P3

Chapter 11 Current Liabilities and Payroll Accounting

429

ABCD

1

Gross Pay Current Week

Name through Sep. 23 Gross Pay Income Tax Withholding

2

3

Ahmed

$126,800

$2,500

$198

4

Carlos

126,885

1,515

182

5

Jun

6,650

475

32

6

Marie

23,700

1,000

68

Required

1. Prepare journal entries to record these transactions and adjustments.

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

3. How much warranty expense is reported for January?

4. What is the balance of the Estimated Warranty Liability account as of December 31? 5. What is the balance of the Estimated Warranty Liability account as of January 31?