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What is the balance of the Estimated Warranty Liability account as of December 31, 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 $90 in both 2014 and 2015. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred.

   

2014

   

  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.

   

2015

   

  Jan. 5  Sold 120 razors for $10,800 cash.
  17  Replaced 29 razors that were returned under the warranty.
  31

 Recognized warranty expense related to January sales with an adjusting entry



4.

What is the balance of the Estimated Warranty Liability account as of December 31, 2014?

 
5. What is the balance of the Estimated Warranty Liability account as of January 31, 2015?




1.

 

1.1

 

Date

 


 

General Journal

 


 

Nov. 11

 

Nov. 11

 

Nov. 30

 

Dec. 9

 

Dec 16

 

Dec. 16

 

Dec.29

 

Dec. 31

 


 

Debit

 


 

Credit

 


 

Cash

 

5400

 

Sales

 

Cost of goods sold

 

840

 

Merchandise inventory

 

Warranty expense 432...

 


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