Question

A Plus Appliances sells dishwashers with a fourminusyear warranty. In​ 2019, sales revenue for dishwashers is $ 88 comma 000. The company estimates warranty expense at 4.5​% of revenues. What is the total estimated warranty payable of A Plus Appliances as of December​ 31, 2019? A Plus Applicances began operating in 2019.​

Answer 1

Answer:

Warranty Expense       (Debit)   $3,960

Warranty Liability                                        (Credit) $3,960

Explanation:

The principle we apply while making entries for standard warranty is this:

The estimated amount of warranty expense, which a company founds as a percentage of its sales from historical claims and data, is taken as benchmark to accrue the warranty expense in the period when the sale is made (matching principle) .

In our question, 4.5% is the estimated warranty expense.

The company then sets off the estimated warranty expense (Debit)

(4.5% * $88,000 = $3,960)

with the warranty liability (Credit) to entertain any claims in future.