Question

During June, Vixen 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:

Answer 1

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

Explanation:

From the question, we are informed that during June, Vixen Company sells $850,000 in merchandise that has a one year warranty and that experience shows that warranty expenses average about 3% of the selling price and that customers returned $14,000 of merchandise for warranty replacement during the month.

The entry to settle the customer warranties is to debit Warranty Expense $25,500 and then credit Estimated Warranty Liability $25,500.

The warranty expense is calculated as:

= 3% × $850,000

= 0.03 × $850,000

= $25,500