Chapter 11, Problem 4AP

1.

To determine

Prepare journal entries to record these transactions and adjustments of Company L.

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 11	Cash $\left(105\text{ razors}\times \$75\right)$	7,875
	Sales		7,875
	(To record the sale of razors for cash.)
November 11	Cost of Goods Sold $\left(105\text{ razors}\times \$20\right)$	2,100
	Merchandise Inventory		2,100
	(To Record the cost of goods sold on November 11)
November 30	Warranty Expense  $\left(\$7,875\times 8\%\right)$	630
	Estimated Warranty Liability		630
	(To record the warranty expense of the razors and the liability at 8%of selling price)
December 09	Estimated Warranty Liability $\left(15\text{ razors}\times \$20\right)$	300
	Merchandise Inventory		300
	(To record the cost of warranty replacements)
December 16	Cash $\left(220\text{ razors}\times \$75\right)$	16,500
	Sales		16,500
	(To record the sale of razors for cash)
December 16	Cost of Goods Sold $\left(220\text{ razors}\times \$20\right)$	4,400
	Merchandise Inventory		4,400
	(To record the cost of goods sold on December 16)
December 29	Estimated Warranty Liability $\left(30\text{ razors}\times \$20\right)$	600
	Merchandise Inventory		600
	(To record cost of razors returned under warranty replacements)
December 31	Warranty Expense $\left(\$16,500\times 8\%\right)$	1,320
	Estimated Warranty Liability		1,320
	(To record the warranty expense of razor and the liability at 8%of selling price)
January 05	Cash $\left(150\text{ razors}\times \$75\right)$	11,250
	Sales		11,250
	(To record the sale of razors for cash)
January 05	Cost of Goods Sold $\left(150\text{ razors}\times \$20\right)$	3,000
	Merchandise Inventory		3,000
	(To record the cost of goods sold on January 05 )
January 17	Estimated Warranty Liability $\left(50\text{ razors}\times \$20\right)$	1,000
	Merchandise Inventory		1,000
	(To record cost of razors warranty replacements.)
January 31	Warranty Expense	900
	Estimated Warranty Liability		900
	(To record the warranty expense of razors and the liability at 8%of selling price)

Table (1)

2.

To determine

Determine the warranty expense that would be reported for November and for December.

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	$7,875	8%	$630
December	$16,500	8%	$1,320
Total	$24,375		$1,950

Table (2)

The warranty expense for November and December is $630 and $1,320 respectively.

3.

To determine

Compute the warranty expense that would be reported for January.

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	$11,250
Warranty percent	8%
Warranty expense	$900

Table (3)

The warranty expense for January is $900.

4.

To determine

Compute the balance of estimated warranty liability account as of December 31.

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	$630
Warranty expense for December	$1,320
Less: Cost of replacing items in December $\left(45\text{ razors }\times \$20\right)$	($900)
Estimated Warranty Liability balance as of December	$1,050

Table (4)

The estimated warranty liability balance as of December is $1,050.

5.

To determine

Compute the balance of estimated warranty liability account as of January 31.

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	$1,050
Warranty expense for January	$900
Less: Cost of replacing items in January $\left(50\text{ razors}\times \$20\right)$	($1,000)
Estimated Warranty Liability balance as of January	$950

Table (5)

The estimated warranty liability balance as of January 31 is $950.