Question

During August, Boxer Company sells $353,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 4% of the selling price. The warranty liability account has a credit balance of $11,500 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,100 in parts for repairs. The entry to record the estimated warranty expense for the month is:_________ a) Debit Warranty Expense $10,720; credit Estimated Warranty Liability $10,720. b) Debit Estimated Warranty Liability $14,120; credit Warranty Expense $14,120. c) Debit Estimated Warranty Liability $8,100; credit Warranty Expense $8,100. d) Debit Warranty Expense $2,620; credit Estimated Warranty Liability $2,620.

Answer 1

Answer:

Debit warranty expense $14,120 ; Credit estimated warranty liability $14,120

Explanation:

Per the above information, the journal entry to record the customer warranty expense for the month is;

Warranty expense Dr. $14,120

To estimated warranty liability Cr. $14,120

The estimated liability is computed on credit sales for the year and the estimated percentage.

Given that;

Credit sales for the year = $353,000

Estimated percentage of credit sales = 4%

Therefore,

Estimated warranty liability

= $353,00 × 4%

= $14,120