Question

Monthly sales are $530,000. Warranty costs are estimated at 3% of monthly sales, warranties are honored with replacement products. No defective products are returned during the month. At the end of the month, the company should record a journal entry with a credit to:
A. Sales for $15,900.
B. Warranty Expense for $15,900.
C. Estimated Warranty Payable for $15,900.
D. Inventory for $15,900.

Answer 1

Answer:

C. Estimated Warranty Payable for $15,900.

Explanation:

The journal entry to record the warranty expense is shown below:

Warranty expense A/c Dr $15,900

       To Estimated Warranty Payable/ Liability A/c  $15,900

(Being warranty expense is recorded)

The computation is shown below:

=  Monthly sales × warranty estimated percentage

=  $530,000 × 3%

=  $15,900

It can be estimated warranty payable or estimated warranty liability