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Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Required information
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On October 29, Lobo Company 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 $14 and its retail selling price is $90. The company expects warranty costs to equal 7% of
dollar sales. The following transactions occurred.
November 11 Sold 50 razors for $4,500 cash.
November 30 Recognized warranty expense related to November sales with an adjusting entry.
December 9 Replaced 10 razors that were returned under the warranty.
December 16 Sold 150 razors for $13,500 cash.
December 29 Replaced 20 razors that were returned under the warranty.
December 31 Recognized warranty expense related to December sales with an adjusting entry.
January 5
Sold 100 razors for $9,000 cash.
January 17
January 31
Replaced 25 razors that were returned under the warranty.
Recognized warranty expense related to January sales with an adjusting entry.
5. What is the balance of the Estimated Warranty Liability account as of January 31?
Estimated warranty liability balance](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F4daeda3b-5278-4fa7-b2ce-c352b31ca222%2Fd46b019b-efde-442a-8a10-66260f1f0dd5%2Ft3cmixr_processed.jpeg&w=3840&q=75)
Transcribed Image Text:15
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1
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}
inces
Required information
[The following information applies to the questions displayed below.]
On October 29, Lobo Company 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 $14 and its retail selling price is $90. The company expects warranty costs to equal 7% of
dollar sales. The following transactions occurred.
November 11 Sold 50 razors for $4,500 cash.
November 30 Recognized warranty expense related to November sales with an adjusting entry.
December 9 Replaced 10 razors that were returned under the warranty.
December 16 Sold 150 razors for $13,500 cash.
December 29 Replaced 20 razors that were returned under the warranty.
December 31 Recognized warranty expense related to December sales with an adjusting entry.
January 5
Sold 100 razors for $9,000 cash.
January 17
January 31
Replaced 25 razors that were returned under the warranty.
Recognized warranty expense related to January sales with an adjusting entry.
5. What is the balance of the Estimated Warranty Liability account as of January 31?
Estimated warranty liability balance
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