1.
Prepare
1.
Explanation of Solution
Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.
Prepare journal entries to record these transactions and adjustments of Company L.
Date | Account title and explanation | Debit ($) | Credit ($) |
November 16 | Cash | 2,500 | |
Sales | 2,500 | ||
(To record the sale of coffee grinders for cash.) | |||
November 16 | Cost of Goods Sold | 1,200 | |
Merchandise Inventory | 1,200 | ||
(To Record the cost of goods sold on November 16) | |||
November 30 | Warranty Expense | 250 | |
Estimated Warranty Liability | 250 | ||
(To record the coffee grinder warranty expense and the liability at 10% of selling price) | |||
December 12 | Estimated Warranty Liability | 144 | |
Merchandise Inventory | 144 | ||
(To record the cost of warranty replacements) | |||
December 18 | Cash | 10,000 | |
Sales | 10,000 | ||
(To record the sale of coffee grinders for cash) | |||
December 18 | Cost of Goods Sold | 4,800 | |
Merchandise Inventory | 4,800 | ||
(To record the cost of goods sold on December 18) | |||
December 28 | Estimated Warranty Liability | 408 | |
Merchandise Inventory | 408 | ||
(To record cost of coffee grinder returned under warranty replacements) | |||
December 31 | Warranty Expense | 1,000 | |
Estimated Warranty Liability | 1,000 | ||
(To record the coffee grinder warranty expense and the liability at 10% of selling price) | |||
January 07 | Cash | 2,000 | |
Sales | 2,000 | ||
(To record the sale of coffee grinders for cash) | |||
January 07 | Cost of Goods Sold | 960 | |
Merchandise Inventory | 960 | ||
( To record the cost of goods sold on January 07 ) | |||
January 21 | Estimated Warranty Liability | 864 | |
Merchandise Inventory | 864 | ||
(To record cost of coffee grinder warranty replacements.) | |||
January 31 | Warranty Expense | 200 | |
Estimated Warranty Liability | 200 | ||
(To record the coffee grinder warranty expense and the liability at 10% of selling price) |
Table (1)
2.
Determine the warranty expense that would be reported for November and for December.
2.
Explanation of Solution
Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.
Compute the warranty expense that would be reported for November and for December.
Warranty expense for November and December | |||
Particulars | Sales | Percent | Warranty Expense |
November | $2,500 | 10% | $250 |
December | $10,000 | 10% | $1,000 |
Total | $12,500 | $1,250 |
Table (2)
The warranty expense for November and December is $250 and $1,000 respectively.
3.
Compute the warranty expense that would be reported for January.
3.
Explanation of Solution
Warranty expense: Warranty expenses are those costs that a business expects to or has already incurred for the repair or replacement of its goods that it has sold.
Determine the warranty expense for January.
Warranty expense for January | |
Particulars | Amount |
Sales in January | $2,000 |
Warranty percent | 10% |
Warranty expense | $200 |
Table (3)
The warranty expense for January is $200.
4.
Compute the balance of estimated warranty liability account as of December 31.
4.
Explanation of Solution
Estimated liability: Estimated liability is an amount of debt or obligation which is valued at a later date, the amount of debt to be incurred is uncertain, but they are capable of being reasonably estimated.
Determine the balance of estimated warranty liability account as of December 31.
Balance of estimated liability as of December 31 | |
Particulars | Amount |
Warranty expense for November | $250 |
Warranty expense for December | $1,000 |
Less: Cost of replacing items in December | ($552) |
Estimated Warranty Liability balance as of December | $698 |
Table (3)
The estimated warranty liability balance as of December is $698.
5.
Compute the balance of estimated warranty liability account as of January 31.
5.
Explanation of Solution
Estimated liability: Estimated liability is an amount of debt or obligation which is valued at a later date, the amount of debt to be incurred is uncertain, but they are capable of being reasonably estimated.
Determine the balance of estimated warranty liability account as of January 31.
Balance of estimated liability as of January 31 | |
Particulars | Amount |
Beginning balance | $698 |
Warranty expense for January | $200 |
Less: Cost of replacing items in January | ($864) |
Estimated Warranty Liability balance as of January 31 | $34 |
Table (3)
The estimated warranty liability balance as of January 31 is $34.
Want to see more full solutions like this?
Chapter 11 Solutions
Principles of Financial Accounting.
- On October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $16 and its retail selling price is $70. The company expects warranty costs to equal 5% of dollar sales. The following transactions occurred. November 11 Sold 60 razors for $4,200 cash.. November 30 Recognized warranty expense related to November sales with an adjusting entry. Replaced 12 razors that were returned under the warranty. Sold 180 razors for $12,600 cash. December 9 December 16 December 29 December 31 Replaced 24 razors that were returned under the warranty. Recognized warranty expense related to December sales with an adjusting entry. Sold 120 razors for $8,400 cash. January 5 January 17 Replaced 29 razors that were returned under the warranty. January 31 Recognized warranty expense related to January sales with an…arrow_forwardOn October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. November 11 Sold 105 razors for $7,875 cash. November 30 Recognized warranty expense related to November sales with an adjusting entry. December 9 Replaced 15 razors that were returned under the warranty. December 16 Sold 220 razors for $16,500 cash. December 29 Replaced 30 razors that were returned under the warranty. December 31 Recognized warranty expense related to December sales with an adjusting entry. January 5 Sold 150 razors for $11,250 cash. January 17 Replaced 50 razors that were returned under the warranty. January 31 Recognized warranty expense related to…arrow_forwardOn October 29, Lobo Co. began operations by purchasing razors for resale. The razors have a 90-day warranty. 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. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. 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. 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. Required 1. Prepare journal entries to record…arrow_forward
- On October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $80. The company expects warranty costs to equal 7% of dollar sales. The following transactions occurred. November 11 Sold 70 razors for $5,600 cash. November 30 Recognized warranty expense related to November sales with an adjusting entry. December 9 Replaced 14 razors that were returned under the warranty. December 16 Sold 210 razors for $16,800 cash. December 29 Replaced 28 razors that were returned under the warranty. December 31 Recognized warranty expense related to December sales with an adjusting entry. January 5 Sold 140 razors for $11,200 cash. January 17 Replaced 33 razors that were returned under the warranty. January 31 Recognized warranty expense related to…arrow_forwardOn October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $60. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. November 11 Sold 70 razors for $4,200 cash. November 30 Recognized warranty expense related to November sales with an adjusting entry. December 9 Replaced 14 razors that were returned under the warranty. December 16 Sold 210 razors for $12,600 cash. December 29 Replaced 28 razors that were returned under the warranty. December 31 Recognized warranty expense related to December sales with an adjusting entry. January 5 Sold 140 razors for $8,400 cash. January 17 Replaced 33 razors that were returned under the warranty. January 31 Recognized warranty expense related to January sales with an…arrow_forwardRequired information [The following information applies to the questions displayed below.] On October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $16 and its retail selling price is $60. The company expects warranty costs to equal 6% of dollar sales. The following transactions occurred. November 11 Sold 50 razors for $3,000 cash. November 30 Recognized warranty expense related to November sales with an adjusting entry. December 9 Replaced 10 razors that were returned under the warranty. December 16 Sold 150 razors for $9,000 cash. December 29 Replaced 20 razors that were returned under the warranty. December 31 Recognized warranty expense related to December sales with an adjusting entry. Sold 100 razors for $6,000 cash. January 5 January 17 January 31 Replaced 25 razors that were…arrow_forward
- Required information [The following information applies to the questions displayed below.] On October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $60. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. November 11 Sold 60 razors for $3,600 cash. November 30 Recognized warranty expense related to November sales with an adjusting entry. December 9 December 16 December 29 Replaced 12 razors that were returned under the warranty. Sold 180 razors for $10,800 cash. Replaced 24 razors that were returned under the warranty. December 31 Recognized warranty expense related to December sales with an adjusting entry. January 5 Sold 120 razors for $7,200 cash. January 17 January 31 Replaced 29 razors that were…arrow_forward[The following information applies to the questions displayed below.] On October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 $70. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. November 11 Sold 80 razors for $5,600 cash. November 30 Recognized warranty expense related to November sales with an adjusting entry. Replaced 32 razors that were returned under the warranty. December 9 December 16 December 29 December 31 January 5 January 17 Replaced 16 razors that were returned under the warranty. Sold 240 razors for $16,800 cash. Recognized warranty expense related to December sales with an adjusting entry. Sold 160 razors for $11,200 cash. Replaced 37 razors that were returned under the warranty.…arrow_forwardRequired Information [The following information applies to the questions displayed below.] On October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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 retall selling price is $60. The company expects warranty costs to equal 8% of dollar sales. The following transactions occurred. November 11 Sold 70 razors for $4,200 cash. November 30 December 9 December 16 December 29 December 31 January 5 January 17 January 31 Recognized warranty expense related to November sales with an adjusting entry. Replaced 14 razors that were returned under the warranty. Sold 210 razors for $12,600 cash. Replaced 28 razors that were returned under the warranty. Recognized warranty expense related to December sales with an adjusting entry. Sold 140 razors for $8,400 cash.. Replaced 33 razors that…arrow_forward
- please dont provide answer in image format thank you [The following information applies to the questions displayed below.] On October 29, Lobo Company began operations by purchasing razors for resale. The razors have a 90-day warranty. 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. The company expects warranty costs to equal 5% of dollar sales. The following transactions occurred. November 11 Sold 60 razors for $4,200 cash. November 30 Recognized warranty expense related to November sales with an adjusting entry. December 9 Replaced 12 razors that were returned under the warranty. December 16 Sold 180 razors for $12,600 cash. December 29 Replaced 24 razors that were returned under the warranty. December 31 Recognized warranty expense related to December sales with an adjusting entry. January 5 Sold 120 razors for $8,400 cash.…arrow_forwardRequired information Use the following information for the Exercises below. (Algo) [The following information applies to the questions displayed below.] Hitzu Company sold a copier (that costs $6,500) for $13,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. Hitzu expects warranty costs to be 5% of dollar sales. It records warranty expense with an adjusting entry on December 31. On January 5 of Year 2, the copier requires on-site repairs that are completed the same day. The repairs cost $93 for materials taken from the parts inventory. These are the only repairs required in Year 2 for this copier. Exercise 9-13 (Algo) Financlal statement impact of warranty transactions LO P4 Analyze each of the following transactions: (a) the copier's sale; (b) the adjustment to recognize the warranty expense on December 31 of Year 1; and (c) the repairs that occur on January 5 of Year 2. Show each transaction's effect on the accounting equation-specifically, identify the…arrow_forwardRequired information [The following information applies to the questions displayed below.] Hitzu Company sold a copier (that costs $4,500) for $9,000 cash with a two-year parts warranty to a customer on August 16 of Year 1. Hitzu expects warranty costs to be 6% of dollar sales. It records warranty expense with an adjusting entry on December 31. On January 5 of Year 2, the copier requires on-site repairs that are completed the same day. The repairs cost $108 for materials taken from the parts inventory. These are the only repairs required in Year 2 for this copier. Analyze each of the following transactions: (a) the copier's sale; (b) the adjustment to recognize the warranty expense on December 31 of Year 1; and (c) the repairs that occur on January 5 of Year 2. Show each transaction's effect on the accounting equation-specifically, identify the accounts and amounts (including+ or -) for each. (Enter all amounts as positive value.) Date August 16 August 16 December 31 January 5 Assets 4…arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning