Question

During June, Vixen Fur Company sells $850,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. Customers returned $14,000 of merchandise for warranty replacement during the month. The entry to settle the customer warranties is:
Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.

Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500.

Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.

Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.

Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.

Answer 1

Answer:

Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.

Explanation:

The journal entry is shown below:

Estimated Warranty Liability A/c Dr $14,000

         To Merchandise Inventory  $14,000

(Being the customer warranties is settled)

Since we have to settle the customer warranties, so we debited the estimated warranty liability account and credited the merchandise inventory account

Hence, all other options are wrong except last one