Reference no: EM131777133
Problem - On October 29, 2008, Bram Co. began operations by purchasing razors for resale. Bram 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 $16 and its retail selling price is $60 in both 2008 and 2009. The manufacturer has advised the company to expect warranty costs to equal 7% of dollar sales. The following transactions and events occurred.
2008
Nov. 11 Sold 75 razors for $4,500 cash.
30 Recognized warranty expense related to November sales with adjusting entry.
Dec. 9 Replaced 15 razors that were returned under the warranty.
16 Sold 210 razors for $12,600.
29 Replaced 30 razors that were returned under the warranty.
31 Recognized warranty expense related to December sales with an adjusting entry.
2009
Jan. 5 Sold 130 razors for $7,800 cash.
17 Replaced 35 razors that were returned under the warranty.
31 Recognized warranty expense related to January sales with an adjusting entry.
Required
1. Prepare journal entries to record these transactions and adjustments for 2008 and 2009.
2. How much warranty expense is reported for November 2008 and for December 2008?
3. How much warranty expense is reported for January 2009?
4. What is the balance of the Estimated Warranty Liability account as of December 31, 2008?
5. What is the balance of the Estimated Warranty Liability account as of January 31, 2009?