Question
On October 29, 2016, 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, 2016, 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 $14 and its retail selling price is $70 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 7% of dollar sales. The following transactions and events occurred. 2016
Nov. | 11 | Sold 50 razors for $3,500 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 $10,500 cash. | |||
29 | Replaced 20 razors that were returned under the warranty. | |||
31 | Recognized warranty expense related to December sales with an adjusting entry. |
2017
Jan. | 5 | Sold 100 razors for $7,000 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 2016.
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