Ask Experts Questions for FREE Help !
Ask
    ppeloso's Avatar
    ppeloso Posts: 1, Reputation: 1
    New Member
    		  
    #1

    Nov 13, 2012, 06:33 PM
    Warranty expense and Liability
    On October 29, 2010, Lue 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 $14 and its retail selling price is $80 in both 2010 and 2011. The manufacturer has advised the company to expect warranty costs to equal 9% of dollar sales. The following transactions and events occurred. Lue uses the perpetual inventory method.

    2010

    Nov. 11 Sold 70 razors for $5,600 cash.
    30 Recognized warranty expense related to November sales with an adjusting entry.
    Dec. 9 Replaced 14 razors that were returned under the warranty.
    16 Sold 210 razors for $16,800 cash.
    29 Replaced 28 razors that were returned under the warranty.
    31 Recognized warranty expense related to December sales with an adjusting entry.

    2011

    Jan. 5 Sold 140 razors for $11,200 cash.
    17 Replaced 33 razors that were returned under the warranty.
    31 Recognized warranty expense related to January sales with an adjusting entry

    How do you find the warranty expense?
    paraclete's Avatar
    paraclete Posts: 2,706, Reputation: 173
    Ultra Member
    		  
    #2

    Nov 13, 2012, 07:26 PM
    I think there was something said about 9% of sales dollars so establish a provision and charge the expense of replacement to it, I would say 9% might not be enough based on percentage of actual numbers
Not your question? Ask your question View similar questions
 

Question Tools Search this Question
Search this Question:

Advanced Search


Check out some similar questions!

Ounting for warranty expense and estimated warranty payables [ 1 Answers ]

Accounting for warranty expense and estimated warranty payable: Treskter USA guarantees automobiles against defects for (5) years or (55,000) miles, whichever comes first. Suppose Treskter USA can expect warranty cost during the (5) years period to add up to (6%) of the sales, Assume that...

Recorded warranty liability is less than the actual expense [ 1 Answers ]

Hello, I was just wondering how you would answer this question. If your warranty liability account bal in 2005 is $74,900 and in 2006 claims were made where you spent $24,800 for parts and $66,000 in labour, how would you record the journal entry in 2006. This is what I did: Dr. Warranty...

Warranty expense & warranty liability [ 2 Answers ]

I need help with the following question. Any pointers is greatly appreciated. Warranty expense. Woodmier Lawn Products introduced a new line of Commercial sprinklers in 2002 that carry a one-year warranty against Manufacturer’s defects. Because this was the first product for which the...

Warranty liability and expense [ 1 Answers ]

Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure. From prior year’s experience. Waymire estimates that 2% of units sold each period will require repair an average cost of $100 per unit. During the current period, waymire sold 60,000 units and...

Warranty expense/ warranty liability [ 1 Answers ]

I am really confused with the following problem and do not know where to even start. C Company began operating near the beginning of 2004. During 2004, C Co. sold plasma televisions for $2,000 each, all carrying a two-year warranty against defects. C company's cost for each plasma television was...

View more questions Search