On October 29, Lobo Co. began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $80. The company expects warranty costs to equal 7%  of dollar sales. The following transactions occurred. Nov.   11   Sold 80 razors for $6,400 cash.     30   Recognized warranty expense related to November sales with an adjusting entry. Dec.   9   Replaced 16 razors that were returned under the warranty.     16   Sold 240 razors for $19,200 cash.     29   Replaced 32 razors that were returned under the warranty.     31   Recognized warranty expense related to December sales with an adjusting entry. Jan.   5   Sold 160 razors for $12,800 cash.     17   Replaced 37 razors that were returned under the warranty.     31   Recognized warranty expense related to January sales with an adjusting entry.   1. Prepare journal entries to record above transactions and adjustments.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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On October 29, Lobo Co. began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $80. The company expects warranty costs to equal 7%  of dollar sales. The following transactions occurred.

Nov.   11   Sold 80 razors for $6,400 cash.
    30   Recognized warranty expense related to November sales with an adjusting entry.
Dec.   9   Replaced 16 razors that were returned under the warranty.
    16   Sold 240 razors for $19,200 cash.
    29   Replaced 32 razors that were returned under the warranty.
    31   Recognized warranty expense related to December sales with an adjusting entry.
Jan.   5   Sold 160 razors for $12,800 cash.
    17   Replaced 37 razors that were returned under the warranty.
    31   Recognized warranty expense related to January sales with an adjusting entry.

 

1. Prepare journal entries to record above transactions and adjustments.

 

!
Required information
Dec 16
Cost of goods sold
Merchandise inventory
7
Dec 29
Estimated warranty liability
Merchandise inventory
Dec 31
Warranty expense
Estimated warranty liability
9.
Jan 05
Cash
Sales
10
Jan 05
Cost of goods sold
Merchandise inventory
11
Jan 17
Estimated warranty liability
Merchandise inventory
12
Jan 31
Warranty expense
Estimated warranty liability
Transcribed Image Text:! Required information Dec 16 Cost of goods sold Merchandise inventory 7 Dec 29 Estimated warranty liability Merchandise inventory Dec 31 Warranty expense Estimated warranty liability 9. Jan 05 Cash Sales 10 Jan 05 Cost of goods sold Merchandise inventory 11 Jan 17 Estimated warranty liability Merchandise inventory 12 Jan 31 Warranty expense Estimated warranty liability
!
Required information
1
Nov 11
Cash
6,400
Sales
6,400
2
Nov 11
Cost of goods sold
Merchandise inventory
3
Nov 30
Warranty expense
Estimated warranty liability
4
Dec 09
Estimated warranty liability
Merchandise inventory
Dec 16
Cash
Sales
Dec 16
Cost of goods sold
Merchandise inventory
7
Dec 29
Estimated warranty liability
Merchandise inventory
8
Dec 31
Warranty expense
Estimated warranty liability
9
Jan 05
Cash
Transcribed Image Text:! Required information 1 Nov 11 Cash 6,400 Sales 6,400 2 Nov 11 Cost of goods sold Merchandise inventory 3 Nov 30 Warranty expense Estimated warranty liability 4 Dec 09 Estimated warranty liability Merchandise inventory Dec 16 Cash Sales Dec 16 Cost of goods sold Merchandise inventory 7 Dec 29 Estimated warranty liability Merchandise inventory 8 Dec 31 Warranty expense Estimated warranty liability 9 Jan 05 Cash
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