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 $16 and its retail selling price is $90 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred. 2016 Nov. 11 Sold 60 razors for $5,400 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. 9 Replaced 12 razors that were returned under the warranty. 16 Sold 180 razors for $16,200 cash. 29 Replaced 24 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. Dec. 2017 5 Sold 120 razors for $10,800 cash. 17 Replaced 29 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry. Jan. Problem 11-4A Part 2 2. How much warranty expense is reported for November 2016 and for December 2016? Warranty expense for November 2016 Warranty expense for December 2016
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 $16 and its retail selling price is $90 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred. 2016 Nov. 11 Sold 60 razors for $5,400 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. 9 Replaced 12 razors that were returned under the warranty. 16 Sold 180 razors for $16,200 cash. 29 Replaced 24 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. Dec. 2017 5 Sold 120 razors for $10,800 cash. 17 Replaced 29 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry. Jan. Problem 11-4A Part 2 2. How much warranty expense is reported for November 2016 and for December 2016? Warranty expense for November 2016 Warranty expense for December 2016
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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**Problem 11-4A Warranty Expense and Liability Estimation LO P4**
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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 $16 and its retail selling price is $90 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred.
**2016**
- Nov. 11: Sold 60 razors for $5,400 cash.
- Nov. 30: Recognized warranty expense related to November sales with an adjusting entry.
- Dec. 9: Replaced 12 razors that were returned under the warranty.
- Dec. 16: Sold 180 razors for $16,200 cash.
- Dec. 29: Replaced 24 razors that were returned under the warranty.
- Dec. 31: Recognized warranty expense related to December sales with an adjusting entry.
**2017**
- Jan. 5: Sold 120 razors for $10,800 cash.
- Jan. 17: Replaced 29 razors that were returned under the warranty.
- Jan. 31: Recognized warranty expense related to January sales with an adjusting entry.
**Problem 11-4A Part 2**
2. How much warranty expense is reported for November 2016 and for December 2016?
| Warranty expense for November 2016 | ___________ |
| Warranty expense for December 2016 | ___________ |
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