Question

White Hat​ Digital, Inc. starts the year with a credit balance of $3,400 in its Estimated Warranty Payable account. During the​year, there were $225,000 in sales and $$5,400 in warranty repair payments. White Hat Digital estimates warranty expense at 2​% of sales.At the end of the​ year, what is the balance in the Estimated Warranty Payable​ account?
A.$2,500

B.$4,500

C.$3,400

D.$5,400

Answer 1

Answer:

A.$2,500

Explanation:

Initial balance of Estimated Warranty Payable account = $3,400

(Credit) Estimated warranty expense = $225,000 x 2% = $4,500

(Debit) Actual warranty repair payments = $5,400

Final balance = initial balance + credit - debit

Final balance = $3,400 + $4,500 -$5,400 = $2,500

At the end of the​ year, the balance in the Estimated Warranty Payable​ account is $2,500