Question

A company sells electronics and with a warranty attached and estimates that they will experience an estimated 5% of sales for warranties. This period's sales are going to be $200,000. The company should make the following entry to record the estimated warranty expense.
a. debit estimated warranty liability $10,000; credit warranty expense $10,000
b. debit warranty expense $10,000; credit estimated warranty liability $10,000
c. debit estimated warranty liability $10,000; credit cash $10,000
d. debit warranty expense $10,000; credit sales $10,000

Answer 1

Answer:

b. debit warranty expense $10,000; credit estimated warranty liability $10,000

Explanation:

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

Warranty Expense  Dr $10,000  ($200,000 × 5%)

       To Estimated Warranty Liability $10,000

(being the warranty expense is recorded)

Here the warranty expense is debited as it increased the expense and credited the estimated warranty liability as it also increased the liability

Therefore the option b is correct