During June,Vixen Company sells $850,000 in merchandise that has a one year warranty.Experience shows that warranty expenses average about 3% of the selling price.Customers returned $14,000 of merchandise for warranty replacement during the month.The entry to settle the customer warranties is:
A)Debit Warranty Expense $11,500; credit Estimated Warranty Liability $11,500.
B)Debit Estimated Warranty Liability $25,500; credit Warranty Expense $25,500.
C)Debit Warranty Expense $14,000; credit Estimated Warranty Liability $14,000.
D)Debit Estimated Warranty Liability $11,500; credit Merchandise Inventory $11,500.
E)Debit Estimated Warranty Liability $14,000; credit Merchandise Inventory $14,000.

Question

Quizplus · Accepted Answer

The correct entry to settle customer warranties involves debiting the Estimated Warranty Liability account and crediting Merchandise Inventory for the cost of the merchandise returned under warranty, which is $14,000 in this case. This reflects the use of the warranty liability previously estimated and the reduction in inventory due to the replacement of the returned merchandise.

During June,Vixen Company Sells $850,000 in Merchandise That Has a One