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Problem 11-4A Warranty expense and liability estimation LO P4

[The following information applies to the questions displayed below.]

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 $80 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 $4,000 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 $12,000 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 $8,000 cash.
		17		Replaced 25 razors that were returned under the warranty.
		31		Recognized warranty expense related to January sales with an adjusting entry.

Problem 11-4A Part 1

1.1 Prepare journal entries to record above transactions and adjustments for 2016.