Question

Monthly sales are​ $530,000. Warranty costs are estimated at​ 3% of monthly sales. Warranties are honored with replacement products. No defective products are returned during the month. At the end of the​ month, the company should record a journal entry with a credit​ to:
A. Sales for $15,900
B. Warranty Expense for $15,900
C. Estimated Warranty Payable for $15,900
D. Inventory for $15,900

Answer 1

Answer:

C. Estimated Warranty Payable for $15,900

Explanation:

The journal entry is shown below:

Warranty expense $15,900

    To Estimated warranty liability $15,900

(Being the warranty expense is recorded)

The computation is shown below:

= Monthly sales × estimated given percentage

= $530,000 × 3%

= $15,900

We simply debited the warranty expense as it increases the expenditure and credited the liabilities as it also increases the liabilities account