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D New Tab Adventure Office Lo Shopping Cart #322 hepersoscontac email prin Check my work mode : This shows what is correct or incorrect for the work you have completed so far. t does not indicete completi Return to c Required information of 5 Problem 11-4A Warranty expense and liability estimation LO P4 The following information applies to the questions displayed below. ts 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.T company's cost per new razor is $14 and its retail selling price is $70 in both 2016 and 2017. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred 2016 Nov. 11 Sold 50 razors for $3,580 cash. 3e Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 10 razors that were returned under the warranty 16 Sold 158 razors for $10,500 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 100 razors for $7,000 cash. 17 Replaced 25 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry Problem 11-4A Part 1 1.1 Prepare journal entries to record above transactions and adjustments for 2016.

Explanation / Answer

1.1 Journal Entries in 2016:

Cash a/c

To Sales a/c

(50 razors x $70)

$3,500

Cost of Goods Sold a/c

To Merchandise Inventory a/c

(50 razors x $14)

$700

Warrenty expense a/c

To Estimates Warrenty Liability a/c

($3,500 x 8%)

$280

Estimated warrenty liability a/c

To Merchandise Inventory a/c

(10 razors x $14)

$140

Cash a/c  

To Sales a/c

(150 razors x $70)

$10,500

$10,500

Cost of Goods Sold a/c

To Merchandise Inventory a/c

(150 razors x $14)

$2,100

Estimated warrenty liability a/c

To Merchandise Inventory a/c

(20 razors x $14)

$280

Warrenty expense a/c

To Estimates Warrenty Liability a/c

(total warrenty expense - Expense recognised)

($420 - $280)

$140

1.2 Journal entries in Jan,2017:

Cash a/c

To Sales a/c

(100 razors x $70)

$7,000

Cost of Goods Sold a/c

To Merchandise Inventory a/c

(100 razors x $14)

$1,400

$1,400

Estimated warrenty liability a/c

To Merchandise Inventory a/c

(25 razors x $14)

$350

Warrenty expense a/c

To Estimates Warrenty Liability a/c

(total warrenty expense = $350)

$350

Date Accounts Debit Credit Nov 11, 2016

Cash a/c

To Sales a/c

(50 razors x $70)

$3,500

$3,500 Nov 11, 2016

Cost of Goods Sold a/c

To Merchandise Inventory a/c

(50 razors x $14)

$700

$700 Nov 30, 2016

Warrenty expense a/c

To Estimates Warrenty Liability a/c

($3,500 x 8%)

$280

$280 Dec 9, 2016

Estimated warrenty liability a/c

To Merchandise Inventory a/c

(10 razors x $14)

$140

$140 Dec 16, 2017

Cash a/c  

To Sales a/c

(150 razors x $70)

$10,500

$10,500

Dec 16, 2017

Cost of Goods Sold a/c

To Merchandise Inventory a/c

(150 razors x $14)

$2,100

$2,100 Dec 29, 2017

Estimated warrenty liability a/c

To Merchandise Inventory a/c

(20 razors x $14)

$280

$280 Dec 31, 2017

Warrenty expense a/c

To Estimates Warrenty Liability a/c

(total warrenty expense - Expense recognised)

($420 - $280)

$140

$140

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