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 $13 and its retail selling price is $70 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 6% of dollar sales. The following transactions and events occurred.

2016

Nov. 11 Sold 60 razors for $4,200 cash.

Nov. 30 Recognized warranty expense related to November sales with an adjusting entry.

Dec. 9 Replaced 12 razors that were returned under the warranty.

Dec. 16 Sold 180 razors for $12,600 cash.

Dec. 29 Replaced 24 razors that were returned under the warranty.

Dec. 31 Recognized warranty expense related to December sales with an adjusting entry.

2017

Jan. 5 Sold 120 razors for $8,400 cash.

Jan.17 Replaced 29 razors that were returned under the warranty.

Jan. 31 Recognized warranty expense related to January sales with an adjusting entry.

Prepare journal entries to record above transactions and adjustments for 2016.

Answer 1