Vargas,Inc.sold goods with a selling price of $50,000 in 2019 and estimated 5% warranty expense for the year.Customers complained of defects,and goods with a cost of $1500 had to be replaced.Which of the following is the correct journal entry for honoring the warranties with goods?

Question

Quizplus · Accepted Answer

To honor the warranties with goods, we need to create a journal entry that debits the warranty expense and credits the inventory account for the cost of the replacement goods.

Option A is incorrect because it only recognizes the cost of the replacement goods and does not record the warranty expense.

Option C is incorrect because it debits the accounts receivable account, which is not affected by the replacement of defective goods.

Option D is incorrect because it only recognizes the cost of the replacement goods and does not record the warranty expense.

Therefore, option B is the correct journal entry as it debits the warranty expense and credits the inventory account for the cost of the replacement goods.