Question

Buffalo Inc reported sales revenue for 2017 and $906,000 their products are sold within nine months warranty .Members of Buffalos management estimate that the cost of the warranty will equal up to 6% of sales revenue entry to record the actual amounts paid out as a result of warranty claims

Answer 1

Answer: Debit to warranty payable the actual amount paid out as a result of warranty claims

Explanation: Warranty payable is a provision for estimated warranty claims to be paid. It is a liability account that has a credit balance.

In recording a warranty payable, a debit is made to warranty expenses account and a credit to warranty payable account.

When the actual warranty claim is paid, the warranty payable account is debited while cash or bank account is credited to record the actual amount paid.