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5 September, 12:09

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

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  1. 5 September, 15:05
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    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
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