Question

Required information [The following information applies to the questions displayed below.] 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 $14 and its retail selling price is $60. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. Nov. 11 Sold 70 razors for $4,200 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 $12,600 cash. 29 Replaced 28 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. Jan. 5 Sold 140 razors for $8,400 cash. 17 Replaced 33 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.

Record the sales revenue of 70 razors for $4,200 cash.

Record the cost of goods sold for 70 razors.

Record the estimated warranty expense at 8% of November sales.

Record the replacement of 14 razors that were returned under the warranty.

Record the sales revenue of 210 razors for $12,600 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 8% of December sales.

Record the sales revenue of 140 razors for $8,400 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.

Answer 1

			Debit	Credit	working
1	Nov 11	Cash	4200
		Sales		4200
2	Nov 11	Cost of goods sold	980		=70*14
		Merchandise inventory		980
3	Nov 30	Warranty expense	336		=4200*8%
		Estimated warranty liability		336
4	Dec 09	Estimated warranty liability	196		=14*14
		Merchandise inventory		196
5	Dec 16	Cash	12600
		Sales		12600
6	Dec 16	Cost of goods sold	2940		=210*14
		Merchandise inventory		2940
7	Dec 29	Estimated warranty liability	392		=28*14
		Merchandise inventory		392
8	Dec. 31	Warranty expense	1008		=12600*8%
		Estimated warranty liability		1008
1B
1	Jan 05	Cash	8400
		Sales		8400
2	Jan 05	Cost of goods sold	1960		=140*14
		Merchandise inventory		1960
3	Jan 17	Estimated warranty liability	462		=33*14
		Merchandise inventory		462
4	Jan 31	Warranty expense	672		=8400*8%
		Estimated warranty liability		672