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11 December, 05:17

A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The current period's entry to record the warranty expense is: Multiple Choice Debit Warranty Expense $240; credit Cash $240. Debit Prepaid Warranties $240; credit Warranty Expense $240. Debit Estimated Warranty Liability $240; credit Cash $240. Debit Sales Allowances $240; credit Estimated Warranty Liability $240. Debit Warranty Expense $240; credit Estimated Warranty Liability $240.

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  1. 11 December, 06:07
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    Debit Warranty Expense $240; credit Estimated Warranty Liability $240.

    Explanation:

    The Journal entry is shown below:-

    Warranty expenses Dr, $240

    To Estimated warranty liability $240

    (Being warranty expense is recorded)

    When the company sells warranty items, the warranty expenses & warranty liability will only be considered in the selling year.

    Working note:-

    Warranty expenses & Estimated warranty liability to be recognize = Sales * Estimated percentage of warranty work

    = $12,000 * 2%

    = $240
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