Question 1 [30 points]

On August 4, Star Inc. began to buy and resell lamps for $45 each. Star Inc. uses the perpetual method to account for inventories. The lamps are covered under a warranty that requires the company to replace any defective lamp within 90 days. When a lamp is returned, the company simply throws it away and mails a new one from inventory to the customer. The company's cost for a new lamp is only $20. The manufacturer has advised the company to expect warranty costs to equal 15% of the units sold.

Question 1 [30 points] On August 4, Star Inc. began to buy and resell lamps for $45 each. Star Inc. uses the perpetual method to account for inventories. The lamps are covered under a warranty that requires the company to replace any defective lamp within 90 days. When a lamp is returned, the company simply throws it away and mails a new one from inventory to the customer. The company's cost for a new lamp is only $20. The manufacturer has advised the company to expect warranty costs to equal 15% of the units sold. Record the following transactions in the journal provided. Record transaction letters as descriptions. Enter the dates in the format dd/mmm (ie. 15/Jan). General Journal Account/Explanation Page Gj1 F Debit Credit Date a. August 10: 300 lamps were sold for cash. b. August 31 : Recognized warranty expense for August with an adjusting entry. c. September 1: Replaced 21 lamps that were returned under the warranty. d. September 7: Sold 300 lamps for cash. e. September 23 : Replaced 22 lamps that were returned under the warranty. f. September 30: The warranty expense for the month of September was recognized with an adjusting entry