Platinum Corp.uses the expense approach to account for warranties.They sell a used car for $30,000 on Oct 25, 2014, with a one year warranty covering parts and labour.Warranty expense is estimated at 2% of the selling price, and the appropriate adjusting entry is recorded at Dec 31, 2014.On March 12, 2015, the car is returned for warranty repairs.This cost Platinum $200 in parts and $120 in labour.When recording the March 12, 2015 transaction, Platinum would debit Warranty Expense with
A)Zero.
B)$120.
C)$200.
D)$320.

Question

Quizplus · Accepted Answer

The expense approach records the estimated warranty expense at the time of sale. Actual costs incurred later are charged against the warranty liability, not the expense account.