Question

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 $15 and its retail selling price is $80 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 7% of dollar sales. The following transactions and events occurred.

2016

Nov.		11		Sold 70 razors for $5,600 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 $16,800 cash.
		29		Replaced 28 razors that were returned under the warranty.
		31		Recognized warranty expense related to December sales with an adjusting entry.

2017

Jan.		5		Sold 140 razors for $11,200 cash.
		17		Replaced 33 razors that were returned under the warranty.
		31		Recognized warranty expense related to January sales with an adjusting entry. Journal entry worksheet Record the sales revenue of 70 razors for $5,600 cash. Note: Enter debits before credits. Date General Journal Debit Credit Nov 11 Journal entry worksheet Record the cost of goods sold for 70 razors. Note: Enter debits before credits. Date General Journal Debit Credit Nov 11 Journal entry worksheet Record the estimated warranty expense at 7% of November sales. Note: Enter debits before credits. Date General Journal Debit Credit Nov 30 Journal entry worksheet Record the replacement of 14 razors that were returned under the warranty. Note: Enter debits before credits. Date General Journal Debit Credit Dec 09 Journal entry worksheet Record the sales revenue of 210 razors for $16,800 cash. Note: Enter debits before credits. Date General Journal Debit Credit Dec 16 Journal entry worksheet Record the cost of goods sold for 210 razors. Note: Enter debits before credits. Date General Journal Debit Credit Dec 16 Journal entry worksheet Record the replacement of 28 razors that were returned under the warranty. Note: Enter debits before credits. Date General Journal Debit Credit Dec 29 Journal entry worksheet Record the estimated warranty expense at 7% of December sales. Note: Enter debits before credits. Date General Journal Debit Credit Dec 31 1.2 Prepare journal entries to record above transactions and adjustments for 2017. Journal entry worksheet Record the sales revenue of 140 razors for $11,200 cash. Note: Enter debits before credits. Date General Journal Debit Credit Jan 05 Journal entry worksheet Record the cost of goods sold for 140 razors. Note: Enter debits before credits. Date General Journal Debit Credit Jan 05 Journal entry worksheet Record the replacement of 33 razors that were returned under the warranty. Note: Enter debits before credits. Date General Journal Debit Credit Jan 17 Journal entry worksheet Record the adjusting entry for warranty expense for the month of January 2017. Note: Enter debits before credits. Date General Journal Debit Credit Jan 31 2. How much warranty expense is reported for November 2016 and for December 2016? Warranty expense for November 2016 Warranty expense for December 2016 3. How much warranty expense is reported for January 2017? Warranty expense 4. What is the balance of the Estimated Warranty Liability account as of December 31, 2016? Estimated warranty liability balance 5. What is the balance of the Estimated Warranty Liability account as of January 31, 2017? Estimated warranty liability balance

Answer 1