If product X cost $50 and had a 4 percent failure rate during the warranty period,the entry to record the estimated product warranty expense in a month when 1,000 units are sold would be
A) Product Warranty Expense 2,000
Estimated Product Warranty Liability 2,000
B) Product Warranty Expense 200
Estimated Product Warranty Liability 200
C) Product Warranty Expense 20
Cash 20
D) Estimated Product Warranty Liability 50
Cash 50

Question

Quizplus · Accepted Answer

The estimated product warranty expense is calculated as the product of the cost per unit and the failure rate. In this case, the cost per unit is $50 and the failure rate is 4%, or 0.04. Therefore, the estimated product warranty expense is $50 x 0.04 = $2.00 per unit. Since 1,000 units are sold, the total estimated product warranty expense is $2.00 x 1,000 = $2,000. This expense is recorded as a debit to Product Warranty Expense and a credit to Estimated Product Warranty Liability.

If Product X Cost $50 and Had a 4 Percent