Booker Company reported sales revenue for 2013 of $800,000.The products were sold with a six-month warranty.Members of Booker's management estimate the cost of the warranty will be equal to 3% of sales revenue.Which of the following is included in the entry to record the actual amounts paid out as a result of warranty claims?

Question

Quizplus · Accepted Answer

DThe correct entries for actual warranty payments involve debiting the Estimated Warranty Payable account for the actual amount of the payments (A), recognizing the liability reduction as claims are settled, and debiting Warranty Expense for the actual amount of payments (D) if the company is recognizing the expense as it occurs, rather than estimating it upfront. However, the most standard approach for warranty claims already estimated would be to debit the Estimated Warranty Payable (A), as this reflects the use of the previously recognized liability. Option D might not typically apply in this scenario if the warranty costs were estimated and accrued at the time of sale, as the expense would have already been recognized.

Booker Company Reported Sales Revenue for 2013 of $800,000