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.

Question

Alonzo Erickson

Business

7 October, 06:22

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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Answers (1)

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Baron · Answer 1

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