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On October 29, 2014, 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 $16 and its retail selling price is $70 in both 2014 and 2015. The manufacturer has advised the company to expect warranty costs to equal 6% of dollar sales. The following transactions and events occurred.

2014

Nov.	11	Sold 70 razors for $4,900 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 $14,700 cash.
	29	Replaced 28 razors that were returned under the warranty.
	31	Recognized warranty expense related to December sales with an adjusting entry.

2015

Jan.	5	Sold 140 razors for $9,800 cash.
	17	Replaced 33 razors that were returned under the warranty.
	31	Recognized warranty expense related to January sales with an adjusting entry.

10.

value: 0.90 points

Required information

1.1

Prepare journal entries to record these transactions and adjustments for 2014.

Record the sales revenue of 70 razors for $4,900 cash. Record the cost of goods sold for 70 razors. Record the estimated warranty expense at 6% of November sales. Record the replacement of 14 razors that were returned under the warranty. Record the sales revenue of 210 razors for $14,700 cash. Record the cost of goods sold for 210 razors. Record the replacement of 28 razors that were returned under the warranty. Record the estimated warranty expense at 6% of December sales.

1.2	Prepare journal entries to record these transactions and adjustments for 2015.
	Record the sales revenue of 140 razors for $9,800 cash. Record the cost of goods sold for 140 razors. Record the replacement of 33 razors that were returned under the warranty. Record the adjusting entry for warranty expense for the month of January 2015.

References

eBook & Resources

WorksheetDifficulty: 2 MediumLearning Objective: 09-P4 Account for estimated liabilities, including warranties and bonuses.

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11.

value: 0.90 points

Required information

2.	How much warranty expense is reported for November 2014 and for December 2014?

References

eBook & Resources

WorksheetDifficulty: 2 MediumLearning Objective: 09-P4 Account for estimated liabilities, including warranties and bonuses.

Ask your instructor a questionCheck my work

12.

value: 0.90 points

Required information

3.	How much warranty expense is reported for January 2015?

References

eBook & Resources

WorksheetDifficulty: 2 MediumLearning Objective: 09-P4 Account for estimated liabilities, including warranties and bonuses.

Ask your instructor a questionCheck my work

13.

value: 0.90 points

Required information

4.	What is the balance of the Estimated Warranty Liability account as of December 31, 2014?

References

eBook & Resources

WorksheetDifficulty: 2 MediumLearning Objective: 09-P4 Account for estimated liabilities, including warranties and bonuses.

Ask your instructor a questionCheck my work

14.

value: 0.90 points

Required information

5.	What is the balance of the Estimated Warranty Liability account as of January 31, 2015?