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:

Question

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The entry to record warranty expense is to debit Warranty Expense and credit Estimated Warranty Liability. This reflects the recognition of the expense and the obligation to fulfill warranties. Option A is incorrect because the liability is debited, not credited. Option B is incorrect because sales should not be credited for this transaction. Option D is incorrect because cash is not involved in this transaction. Option E is incorrect because warranty expense should be recognized even if the items have not been returned for repairs.

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