[The following information applies to the questions displayed below.] Entry #2 (

Question

[The following information applies to the questions displayed below.]

Entry #2 (Nov 11) Record the cost of goods sold for 80 razors.

Entry #3 (Nov 30) Record the estimated warranty expense at 5% of November sales.

Entry #4 (Dec 6) .Record the replacement of 16 razors that were returned under the warranty

Entry #5 (Dec 16) Record the sales revenue of 240 razors for $14,400 cash.

Entry #6 (Dec 16) Record the cost of goods sold for 240 razors.

Entry #7 (Dec 29) Record the replacement of 32 razors that were returned under the warranty.

Entry #8 (Dec 31) Record the estimated warranty expense at 5% of December sales.

Entry #2 (Jan 5) Record the cost of goods sold for 160 razors.

Entry #3 (Jan 17) Record the replacement of 37 razors that were returned under the warranty.

Entry #4 (Jan 31) Record the adjusting entry for warranty expense for the month of January 2013.

Problem 11-4A Warranty expense and liability estimation LO P4 [The following information applies to the questions displayed below.] On October 29, 2012, 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 $15 and its retail selling price is $60 in both 2012 and 2013. The manufacturer has advised the company to expect warranty costs to equal 5% of dollar sales. The following transactions and events occurred. 2012 11 Sold 80 razors for $4,800 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. 9 Replaced 16 razors that were returned under the warranty. 16 Sold 240 razors for $14,400 cash. 29 Replaced 32 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. Nov. Dec. 2013 5 Sold 160 razors for $9,600 cash. 17 Replaced 37 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry. Jan.

Explanation / Answer

1.1 & 1.2

Date Particulars Debit Credit 11-Nov-12 Cash 4800                  Sales 4800 Razors sold Cost of Goods Sold 1200                Merchandise Inventory 1200 = 80 razor x 15 cost Cost of razors transferred to Cost of Goods sold account 30-Nov-12 Warranty expense 240           Estimated Warranty liability 240 Warranty expense recorded 4800 x 5 %, = 240 9-Dec-12 Estimated Warranty liability 240                 Merchandise Inventory 240 Replaced 16 Razors at 15 per razor cost 16-Dec-12 Cash 14400                  Sales 14400 Razors sold Cost of Goods Sold 3600                Merchandise Inventory 3600 Cost of razors transferred to Cost of Goods sold account = 240 x 15 , = 3600 29-Dec-12 Estimated Warranty liability 480                 Merchandise Inventory 480 Replaced 32 Razors at 15 per razor cost 31-Dec-12 Warranty expense 720           Estimated Warranty liability 720 Warranty expense recorded = 14400 x 5% 5-Jan-13 Cash 9600                  Sales 9600 Razors sold Cost of Goods Sold 2400                Merchandise Inventory 2400 Cost of razors transferred to Cost of Goods sold account = 160 x 15 , = 2400 17-Jan-13 Estimated Warranty liability 555                 Merchandise Inventory 555 Replaced 37 Razors at 15 per razor cost 31-Jan-13 Warranty expense 480           Estimated Warranty liability 480 Warranty expense recorded = 9600 x 5%

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