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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 $14 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 70 razors for $5,600 cash. | ||
30 | Recognized warranty expense related to November sales with an adjusting entry. | |||
Dec. | 9 | Replaced 14 razors that were returned under the warranty. | ||
16 | Sold 210 razors for $16,800 cash. | |||
29 | Replaced 28 razors that were returned under the warranty. | |||
31 | Recognized warranty expense related to December sales with an adjusting entry. | |||
Jan. | 5 | Sold 140 razors for $11,200 cash. | ||
17 | Replaced 33 razors that were returned under the warranty. | |||
31 | Recognized warranty expense related to January sales with an adjusting entry. |
Required: 1. Prepare journal entries to record above transactions and adjustments.
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