Rambler Company reported sales revenue for 2019 of $903,000.The products were sold with a nine-month warranty.Members of Rambler's management estimate that the cost of the warranty will be equal to 7% of sales revenue.Which of the following will be included in the entry to record the actual amounts paid out as a result of warranty claims?

Question

Quizplus · Accepted Answer

DWhen recording the actual amounts paid out for warranty claims, the company would debit the Estimated Warranty Payable account for the actual amount of payments, reflecting a decrease in the liability. Additionally, a debit to Warranty Expense for the actual amount of payments is also correct if the company is adjusting the expense account directly for actual warranty costs incurred, rather than adjusting the previously estimated liability. However, the typical approach involves adjusting the liability (Estimated Warranty Payable) as claims are paid.

Rambler Company Reported Sales Revenue for 2019 of $903,000