During June, Vixen Fur Company sells $850,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 3% of the selling price. Customers returned $14,000 of merchandise for warranty replacement during the month. The entry to settle the customer warranties is:
Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500.
Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.
Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.
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