TNT Construction had cash sales for the month of June totaling $43,700.TNT offers a 1-year warranty on its construction services.If TNT estimates warranty claims will equal 5% of sales,the journal entry to record the estimated warranty expense for the month is:

Question

Quizplus · Accepted Answer

The estimated warranty expense for the month can be calculated by using the formula,
Estimated warranty expense = Sales x Warranty claim rate
Here, the sales for June is $43,700 and the estimated warranty claim rate is 5%, which gives us an estimated warranty expense of $2,185 ($43,700 x 0.05).

To record this expense, we need to use the accrual accounting method which requires us to create a liability called "Estimated warranty payable" and debit the "Warranty expense" account for the same amount. Thus, the journal entry to record the estimated warranty expense for the month is:
debit Warranty expense, $2,185; credit Estimated warranty payable, $2,185.

TNT Construction Had Cash Sales for the Month of June