Aisha Company paid $1,500 cash to replace a wheel on equipment sold under a two-year warranty in the prior year.The entry to record the payment would be to:

Question

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The payment made by Aisha Company for replacing a wheel on equipment sold under a two-year warranty in the prior year should be recorded by debiting Estimated Warranty Payable and crediting Cash. This is because the warranty was already recognized as a liability in the prior year, and the payment made now is to settle that liability. Therefore, the expense was already recognized, and the payment made should just reduce the liability. This entry ensures that the payment is recorded correctly without affecting the current year's income statement. Hence, option C is the correct choice.

Aisha Company Paid $1,500 Cash to Replace a Wheel on Equipment