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Current Liabilities and Payroll Accounting

On October 29, 2010, Lue Co. began operations by purchasing razors for resale. Lue 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 $13 and its retail selling price is $80 in both 2010 and 2011. The manufacturer has advised the company to expect warranty costs to equal 8% of dollar sales. The following transactions and events occurred.

2010

Nov. 11 Sold 60 razors for $4,800 cash.
30 Recognized warranty expense related to November sales with an adjusting entry.
Dec. 9 Replaced 12 razors that were returned under the warranty.
16 Sold 180 razors for $14,400 cash.
29 Replaced 24 razors that were returned under the warranty.
31 Recognized warranty expense related to December sales with an adjusting entry.

2011

Jan. 5 Sold 120 razors for $9,600 cash.
17 Replaced 29 razors that were returned under the warranty.
31 Recognized warranty expense related to January sales with an adjusting entry.
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