On October 29, 2014, Lobo Co. began operations by purchasing razors for resale.
ID: 2499717 • Letter: O
Question
On October 29, 2014, 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 $14 and its retail selling price is $70 in both 2014 and 2015. The manufacturer has advised the company to expect warranty costs to equal 6% of dollar sales. The following transactions and events occurred.
Prepare journal entries to record these transactions and adjustments for 2015.
What is the balance of the Estimated Warranty Liability account as of December 31, 2014?
How much warranty expense is reported for January 2015?
How much warranty expense is reported for November 2014 and for December 2014?
On October 29, 2014, 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 $14 and its retail selling price is $70 in both 2014 and 2015. The manufacturer has advised the company to expect warranty costs to equal 6% of dollar sales. The following transactions and events occurred.
Explanation / Answer
Purchase price of share $7.78 Transaction fee 1.5 Total cost $9.28 today selling price 19.31 Profit $10.03 rate of return 108.1% (10.03/9.28) Date Accounts Debit Credit 11-Nov cash 4,900 sales 4,900 - 30-Nov Warranty expense 294 - 4900*6% Estimated warranty liability 294 - 9-Dec Estimated warranty liability 196 - 14*14 Inventory 196 - 16-Dec cash 14,700 sales 14,700 - 29-Dec Estimated warranty liability 392 - 28*14 Inventory 392 31-Dec Warranty expense 882 - Estimated warranty liability 882 - 5-Jan cash 9,800 sales 9,800 17-Jan Estimated warranty liability 462 - 33*14 Inventory 462 5-Jan Warranty expense 588 - Estimated warranty liability 588 balance of the Estimated Warranty Liability account as of January 31, 2015: 714 Estimated Warranty Liability account as of December 31, 2014 588 warranty expense is reported for January 2015 588 warranty expense is reported for November 2014 and for December 2014 1,176
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