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 $13 and its retail selling price is $80. The company expects warranty costs to equal 7% of dollar sales. The following transactions occurred.
Nov. | 11 | Sold 80 razors for $6,400 cash. | ||
30 | Recognized warranty expense related to November sales with an adjusting entry. | |||
Dec. | 9 | Replaced 16 razors that were returned under the warranty. | ||
16 | Sold 240 razors for $19,200 cash. | |||
29 | Replaced 32 razors that were returned under the warranty. | |||
31 | Recognized warranty expense related to December sales with an adjusting entry. | |||
Jan. | 5 | Sold 160 razors for $12,800 cash. | ||
17 | Replaced 37 razors that were returned under the warranty. | |||
31 | Recognized warranty expense related to January sales with an adjusting entry. |
1) What is the balance of the Estimated Warranty Liability account as of December 31?
2) What is the balance of the Estimated Warranty Liability account as of January 31?
No 1 Credit Date Nov 11 General Journal Cash Sales Debit 6.400 6,400 2 Nov 11 1,040 Cost of goods sold Merchandise Inventory 1,040 3 Nov 30 Warranty expense Estimated warranty liability 448 448 4 Dec 09 208 Estimated warranty liability Merchandise inventory 208 5 Dec 16 19,200 Cash Sales 19,200 6 Dec 16 3.120 Cost of goods sold Merchandise inventory 3,120 7 Dec 29 416 Estimated warranty liability Merchandise inventory 416 8 Dec 31 1,344 Warranty expense Estimated warranty liability 1,344 9 Jan 05 12,800 Cash Sales 12,800 10 Jan 05 2,080 Cost of goods sold Merchandise inventory 2,080 11 Jan 17 481 Estimated warranty liability Merchandise inventory 481 12 Jan 31 896 Warranty expense Estimated warranty liability 896Step by Step Solution
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