Lincoln Company sells 600 units of a product that has a one-year warranty on parts. The average cost of honoring one warranty contract is $50. During the year 30 contracts are honored at a cost of $1,500. It is estimated that 60 contracts will be honored in the following year. The adjusting entry at the end of the current year will include a

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The adjusting entry at the end of the current year will include a credit to Estimated Warranty Liability for $3,000. This is because the company has incurred $1,500 in warranty costs during the year and estimates that it will incur an additional $4,500 in warranty costs in the following year. The total estimated warranty liability is therefore $6,000, which is credited to Estimated Warranty Liability at the end of the current year.

Lincoln Company Sells 600 Units of a Product That Has