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 companys cost per new razor is $20 and its retail selling price is $75 in both 2012 and 2013. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred. |
2012 |
Nov. | 11 | Sold 105 razors for $7,875 cash. |
30 | Recognized warranty expense related to November sales with an adjusting entry. | |
Dec. | 9 | Replaced 15 razors that were returned under the warranty. |
16 | Sold 220 razors for $16,500 cash. | |
29 | Replaced 30 razors that were returned under the warranty. | |
31 | Recognized warranty expense related to December sales with an adjusting entry. |
2013 |
Jan. | 5 | Sold 150 razors for $11,250 cash. | ||
17 | Replaced 50 razors that were returned under the warranty. | |||
1. | 31. Recognized warranty expense related to January sales with an adjusting entry. Prepare journal entries to record below transactions and adjustments for 2012.
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