Question
On October 29, Lobo Co. began operations by purchasing razors for resale. The razors have a 90-day warranty. When a razor is returned, the company
On October 29, Lobo Co. began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $20 and its retail selling price is $75. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred.
Nov.11Sold 105 razors for $7,875 cash.
30Recognized warranty expense related to November sales with an adjusting entry.
Dec.9Replaced 15 razors that were returned under the warranty.
16Sold 220 razors for $16,500 cash.
29Replaced 30 razors that were returned under the warranty.
31Recognized warranty expense related to December sales with an adjusting entry.
Jan.5Sold 150 razors for $11,250 cash.
17Replaced 50 razors that were returned under the warranty.
31Recognized warranty expense related to January sales with an adjusting entry.
Prepare journal entries to record above transactions and adjustments.
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