60.1K

Verified Solution

Link Copied!

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

[The following information applies to the questions displayed below.]

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 $80 in both 2012 and 2013. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred.

2012

Nov.	11	Sold 50 razors for $4,000 cash.
	30	Recognized warranty expense related to November sales with an adjusting entry.
Dec.	9	Replaced 10 razors that were returned under the warranty.
	16	Sold 150 razors for $12,000 cash.
	29	Replaced 20 razors that were returned under the warranty.
	31	Recognized warranty expense related to December sales with an adjusting entry.

2013

Jan.	5	Sold 100 razors for $8,000 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 2012.

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

Problem 11-4A Part 2

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

Problem 11-4A Part 3

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

Problem 11-4A Part 4

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

Problem 11-4A Part 5

5.	What is the balance of the Estimated Warranty Liability account as of January 31, 2013?

Answer & Explanation Solved by verified expert

See Answer