A company estimates that warranty expense will be 4% of sales.The company's sales for the current period are $185,000.The current period's entry to record the warranty expense is:
E)No entry is recorded until the items are returned for warranty repairs.

Question

Quizplus · Accepted Answer

To record the warranty expense, we need to calculate 4% of sales, which is $7,400 (4% of $185,000). Therefore, the entry to record the warranty expense is to debit Warranty Expense for $7,400 and credit Warranty Liability for $7,400, which is represented by option B. Option A is incorrect because it debits Warranty Liability and credits Cash, which is not the correct treatment. Option C is incorrect because it debits Warranty Expense and credits Sales, which is not the correct treatment. Option D is incorrect because it debits Sales and credits Warranty Expense, which is not the correct treatment. Option E is incorrect because the warrant expense needs to be recorded even if the items have not been returned for warranty repairs.

A Company Estimates That Warranty Expense Will Be 4% of Sales.The