Acc225 Fundamental Accounting Principles: P11-2A On October 29, 2010, Lobo Co. began operations
Important Reminder!!! There might be other versions of this problem - amounts and dates have been changed - so please make sure you review and compare this tutorial to the problem in your homework. Even with different amounts, format and way of solving the problem is still the same so pleases be guided accordingly. Acc225 Fundamental Accounting Principles P11-2A On October 29, 2010, Lobo Co. began operations by purchasing razors for resale. 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 $20 and its retail selling price is $75 in both 2010 and 2011. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred. Lobo uses the perpetual inventory method. 2010 Nov.11 Sold 105 razors for $7,875 cash. 30 Recognized warranty expense related to November sales with an adjusting entry. Dec. 9 Replaced 15 razors that were returned under the warranty. 16 Sold 220 razors for $16,500 cash. 29 Replaced 30 razors that were returned under the warranty. 31 Recognized warranty expense related to December sales with an adjusting entry. 2011 Jan. 5 Sold 150 razors for $11,250 cash. 17 Replaced 50 razors that were returned under the warranty. 31 Recognized warranty expense related to January sales with an adjusting entry. Instructions: 1. Prepare journal entries to record above transactions and adjustments for 2010 and 2011. 2. How much warranty expense is reported for November 2010 and for December 31, 2010? 3. How much warranty expense is reported for January 2011? 4. What is the balance of the Estimated Warranty Liability account as of December 31, 2010? 5. What is the balance of the estimated warranty Liability account as of January 31, 2011?
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