Evergreen Roofing had cash sales for the month totaling $42,000. Evergreen offers a 1-year warranty on its roofing services. If Evergreen estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

Question

Quizplus · Accepted Answer

The best choice for the journal entry to record the estimated warranty expense is option D, which is to debit warranty expense and credit estimated warranty payable for $1,260. This is because the estimated warranty expense of $1,260 is an expense that needs to be recognized when revenue is earned (in this case, during the month of cash sales). Therefore, it should be debited to the warranty expense account. Additionally, because warranty claims are estimated to equal 3% of sales, the amount of estimated warranty payable needs to be credited for the same amount to reflect the fact that some future warranty claims will be paid out. Option B is also a valid choice, but it is less specific, as it only credits warranty payable rather than estimated warranty payable.

Evergreen Roofing Had Cash Sales for the Month Totaling $42,000