Ragas Inc.sold goods with a selling price of $50,000 in the year 2013 and estimated 4% warranty expense for the year.Customers complained of defects and goods with a cost of $1,500 had to be replaced.Which of the following is the correct journal entry for honoring the warranties with goods?

Question

Quizplus · Accepted Answer

The correct journal entry for honoring the warranties with goods is to debit the warranty expense account and credit the inventory account. In this case, the amount of goods replaced is $1,500, which is the cost of the goods (not the selling price). Therefore, the journal entry would be:
Debit Warranty Expense $1,500
Credit Inventory $1,500

Choice A is incorrect because it credits Cash instead of Inventory.
Choice C is incorrect because it debits the wrong account (Accounts Payable) instead of Warranty Expense.
Choice D is incorrect because it credits Cash instead of Inventory.

Ragas Incsold Goods with a Selling Price of $50,000 in the the Year