During March,Photo Mart sold 300 instant cameras for $200 each.Each camera had cost Photo Mart $138 to purchase and carried a one-year warranty.If 4 percent typically need to be replaced over the warranty period and two actually are replaced during March,the entry to record the Product Warranty Expense for the month is:

Question

Quizplus · Accepted Answer

To calculate the Product Warranty Expense, we need to first estimate the number of cameras that will need to be replaced over the warranty period. In this case, 4% of the 300 cameras sold is 12 cameras.

Since only 2 cameras were replaced during March, we can assume that the remaining 10 replacements will happen over the next 12 months. Therefore, the estimated Product Warranty Liability is $138 x 10 = $1,380.

To record the Product Warranty Expense for the month of March, we need to recognize a portion of this liability. Since only 1/6th of the warranty period has passed (1 out of 12 months), we will recognize 1/6th of the liability:

$1,380 / 6 = $230

However, we already replaced 2 cameras during March, so we need to subtract the cost of those replacements from the expense:

$230 - ($138 x 2) = $230 - $276 = -$46

Since this is a negative expense, it means we actually received more revenue than expected from warranty replacements. To record this, we will credit the Estimated Product Warranty Liability account:

Product Warranty Expense: $1,656 (debit)
Estimated Product Warranty Liability: $1,656 (credit)

Therefore, the best choice is D.

During March,Photo Mart Sold 300 Instant Cameras for $200 Each