Question
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
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 $15 and its retail selling price is $60 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 5% of dollar sales. The following transactions and events occurred. 2016
Nov. | 11 | Sold 60 razors for $3,600 cash. | ||
30 | Recognized warranty expense related to November sales with an adjusting entry. | |||
Dec. | 9 | Replaced 12 razors that were returned under the warranty. | ||
16 | Sold 180 razors for $10,800 cash. | |||
29 | Replaced 24 razors that were returned under the warranty. | |||
31 | Recognized warranty expense related to December sales with an adjusting entry. |
2017
Jan. | 5 | Sold 120 razors for $7,200 cash. | ||
17 | Replaced 29 razors that were returned under the warranty. | |||
31 | Recognized warranty expense related to January sales with an adjusting entry. |
3. How much warranty expense is reported for January 2017?
4. What is the balance of the Estimated Warranty Liability account as of December 31, 2016?
5. What is the balance of the Estimated Warranty Liability account as of January 31, 2017?
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