PLEASE DO ALL 5 PARTS!!! Required information Problem 11-4A Warranty expense and

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PLEASE DO ALL 5 PARTS!!!

Required information

Problem 11-4A Warranty expense and liability estimation LO P4

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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 $90 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

2017

Problem 11-4A Part 1

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

1.2 Prepare journal entries to record above transactions and adjustments for 2017.

Problem 11-4A Part 2

2. How much warranty expense is reported for November 2016 and for December 2016?

Problem 11-4A Part 3

3. How much warranty expense is reported for January 2017?

Problem 11-4A Part 4

4. What is the balance of the Estimated Warranty Liability account as of December 31, 2016?

Problem 11-4A Part 5

5. What is the balance of the Estimated Warranty Liability account as of January 31, 2017?

Nov. 11 Sold 60 razors for $5,400 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 $16,200 cash. 29 Replaced 24 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry.

Explanation / Answer

1.1 Journal Entries for 2016 :-

1.2 Journal Entries for 2017 :-

2)a. Warranty Expenses for Nov. 2016 :-

= $5400*6%

= $324

2)b. Warranty Expenses for Dec. 2016 :-

= $16200*6%

= $972

3). Warranty Expenses for Jan. 2017 :-

= $10800*6%

= $648

4). Estimated Warranty Liability Account as on Dec. 31, 2016 :-

= $324 + $972 - $180 - $360

= $1296 - $540

= $756

5). Estimated Warranty liability account as on Jan. 31, 2017:-

= $756 + $648 - $435

= $969

Date Particulars Debit ($) Credit ($) Nov 11 Cash A/c Dr. 5400 To Sale 5400 Nov. 11, 2014 Cost of Goods Sold A/c Dr. 900 To Inventory (60*$15) 900 Nov. 30 Warranty Expenses ($5400*6%) A/c Dr. 324 To Warranty Liability 324 Dec. 9 Warranty Liability (12*$15) 180 To Inventory 180 Dec. 16 Cash A/c Dr. 16200 To Sales 16200 Dec. 16 Cost of Goods Sold A/c Dr. 2700 To Inventory (180 * $15) 2700 Dec. 29 Warranty Liability A/c Dr. (24*$15) 360 To Inventory 360 Dec. 31 Warranty Expenses ($16200*6%) 972 To Warranty Liability 972

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