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 $80. The company expects warranty costs to equal 8% of
dollar sales. The following transactions occurred.
November 11 Sold 50 razors for $4,000 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 $12,000 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.
January 5 Sold 100 razors for $8,000 cash.
January 17
Replaced 25 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 4
4. What is the balance of the Estimated Warranty Liability account as of December 31?
Estimated warranty liability balance