Monthly sales are $500,000.Warranty costs are estimated at 4% of monthly sales.Warranties are honored with replacement products.No defective products are returned during the month.At the end of the month,the company should record a journal entry with a credit to:

Question

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The company should record a liability for the estimated warranty costs, which is 4% of $500,000, resulting in $20,000. This is credited to Estimated Warranty Payable.

Monthly Sales Are $500,000