During July,Audio City sold 200 radios for $50 each.Each radio had cost Audio City $30 to purchase and carried a two-year warranty.If 5 percent typically need to be replaced over the warranty period and one actually is replaced during July,the entry to record the Product Warranty Expense is:

Question

Quizplus · Accepted Answer

The Product Warranty Expense is recorded when a product needs to be replaced under warranty. In this case, one radio was replaced during July, and the typical replacement rate is given as 5% over the warranty period. Therefore, the total number of radios that will need to be replaced over the warranty period is:

5% of 200 radios = 10 radios

Since only one radio was replaced in July, the remaining 9 replacements will occur over the next two years. To record the Product Warranty Expense, we need to debit the Warranty Expense account and credit the Warranty Liability account. The entry would be:

Debit: Warranty Expense - $30
Credit: Warranty Liability - $30

The correct answer choice is C, as it shows this entry with the correct account names and amounts.