Question
On October 29, 2012, Lobo Co. began operations by purchasing razors for resale. Lobo uses the perpetual inventory method. The razors have a 90-day warranty
On October 29, 2012, 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 $16 and its retail selling price is $80 in both 2012 and 2013. The manufacturer has advised the company to expect warranty costs to equal 7% of dollar sales. The following transactions and events occurred. |
2012 |
Nov. | 11 | Sold 50 razors for $4,000 cash. |
30 | Recognized warranty expense related to November sales with an adjusting entry. | |
Dec. | 9 | Replaced 10 razors that were returned under the warranty. |
16 | Sold 150 razors for $12,000 cash. | |
29 | Replaced 20 razors that were returned under the warranty. | |
31 | Recognized warranty expense related to December sales with an adjusting entry. |
2013 |
Jan. | 5 | Sold 100 razors for $8,000 cash. |
17 | Replaced 25 razors that were returned under the warranty. | |
31 | Recognized warranty expense related to January sales with an adjusting entry. |
1.1 | Prepare journal entries to record above transactions and adjustments for 2012.
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