On October 29, 2012, Lobo Co. began operations by purchasing razors for resale.

Question

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 $13 and its retail selling price is $70 in both 2012 and 2013. The manufacturer has advised the company to expect warranty costs to equal 6% of dollar sales. The following transactions and events occurred. 2012 Nov. 11 Sold 60 razors for $4,200 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 12 razors that were returned under the warranty. 16 Sold 180 razors for $12,600 cash. 29 Replaced 24 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. 2013 Jan. 5 Sold 120 razors for $8,400 cash. 17 Replaced 29 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry.

Prepare journal entries to record above transactions and adjustments for 2012.

Prepare journal entries to record above transactions and adjustments for 2013.

How much warranty expense is reported for November 2012 and for December 2012?

3. How much warranty expense is reported for January 2013?

4.What is the balance of the Estimated Warranty Liability account as of December 31, 2012?

Prepare journal entries to record above transactions and adjustments for 2012.

Prepare journal entries to record above transactions and adjustments for 2013.

How much warranty expense is reported for November 2012 and for December 2012?

3. How much warranty expense is reported for January 2013?

Explanation / Answer

Ans 1 Date Account Head Debit Credit 2012 Nov. 11 Cash 4200 Sales 4200 2012 Nov. 11 Cost of Goods Sold 780 Inventory 780 2012 Nov. 30 Warrant Expenses 252 Provision for Warranty Liability 252 2012 Dec 09 Provision for Warranty Liability 156 Inventory 156 2012 Dec 16 Cash 12600 Sales 12600 2012 Dec 16 Cost of Goods Sold 2340 Inventory 2340 2012 Dec 29 Provision for Warranty Liability     96.00 Warrant Expenses 216.00 Inventory 312.00 2012 Dec 31 Warrant Expenses 540.00 Provision for Warranty Liability 540.00 2013 Jan.5 Cash 8400 Sales 8400 Cost of Goods Sold 1560 2013 Jan.5 Inventory 1560 2013 Jan 17 Provision for Warranty Liability 377.00 Inventory 377.00 2013 Jan 31 Warrant Expenses 504 Provision for Warranty Liability 504 Ans 2 Details 2012 Nov 2012 Dec 2013 Jan Sales 4,200.00 12,600.00 8,400.00 Warrany Claim 6%      252.00        756.00      504.00 Ans 3 &4 Details Amount Amount Total Sales in 2012 16,800.00 Warrnaty Claim provided 6% 1,008.00 Less Warrant Claim Materalized      468.00 Balance in Estimated Warranty Liability      540.00 Ans 5 Details Amount Amount Total Sales in 2013     8,400.00 Warrnaty Claim provided 6%      504.00 Less Warrant Claim Materalized                -   Add Opening Warrant Liability      540.00 Balance in Estimated Warranty Liability 1,044.00

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