Question

During August, Boxer Company sells $360,000 in merchandise that has a one-year warranty. Experience shows that warranty expenses average about 4% of the selling price. The warranty liability account has a credit balance of $12,400 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,000 in parts for repairs. The entry to record the estimated warranty expense for the month is:

Answer 1

Answer:

Debit Estimated Warranty Liability $12,400

Credit Warranty Expense $12,400

Explanation:

Warranty Expense = 0.04 * Total Sales

Warranty Expense = 0.04 * $360,000

Warranty Expense = $14,400

Warranty Liability Account = Warranty Expense + Opening balance of the Warranty liability Account

Warranty Liability Account = $14,400 + $12,400

Warranty Liability Account = $26,800

The business would incur actual warranty expense of $12,400.

Debit Estimated Warranty Liability $12,400

Credit Warranty Expense $12,400