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problem 9-4a (algo) estimating warranty expense and liability lo p4
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 $90. the company expects warranty costs to equal 6% of
dollar sales. the following transactions occurred.
november 11 sold 70 razors for $6,300 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 $18,900 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 $12,600 cash.
january 17 replaced 33 razors that were returned under the warranty.
january 31 recognized warranty expense related to january sales with an adjusting entry.
problem 9-4a (algo) part 2

1. how much warranty expense is reported for november and for december?

Explanation:

Step1: Calculate November Warranty Expense

Warranty expense is 6% of dollar sales. November sales are $6,300.
$Warranty\ Expense_{November} = 6\% \times 6300$
$= 0.06 \times 6300$
$= 378$

Step2: Calculate December Warranty Expense

December sales are $18,900.
$Warranty\ Expense_{December} = 6\% \times 18900$
$= 0.06 \times 18900$
$= 1134$

Answer:

Warranty expense for November: $\$378$
Warranty expense for December: $\$1134$