Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The cars sold for an average of $9,500 each. The following activities occurred during 2010.
If Julia accrued its warranty liability with a single adjusting entry at year-end, the journal entry would include:
a. a debit to Contingent Warranty Liability for $28,700
b. a debit to Warranty Expense for $28,700
c. a credit to Parts for $17,220
d. a credit to Cash for $28,700

Question

Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The cars sold for an average of $9,500 each. The following activities occurred during 2010.
  If Julia accrued its warranty liability with a single adjusting entry at year-end, the journal entry would include: 
a. a debit to Contingent Warranty Liability for $28,700
b. a debit to Warranty Expense for $28,700
c. a credit to Parts for $17,220
d. a credit to Cash for $28,700

Quizplus · Accepted Answer

The Answer of Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The cars sold for an average of $9,500 each. The following activities occurred during 2010.
  If Julia accrued its warranty liability with a single adjusting entry at year-end, the journal entry would include: 
a. a debit to Contingent Warranty Liability for $28,700
b. a debit to Warranty Expense for $28,700
c. a credit to Parts for $17,220
d. a credit to Cash for $28,700

Julia Used Cars Offers a One-Year Warranty from the Date