Ragas,Inc.sold goods with a selling price of $62,000 in the 2017 and estimated 4% warranty expense for the year.Customers complained of defects,and goods with a cost of $3,500 had to be replaced.Which of the following is the correct journal entry for honoring the warranties with goods?

Question

Quizplus · Accepted Answer

The journal entry for honoring the warranties with goods is to debit Warranty Expense and credit Inventory for the cost of the goods replaced. In this case, the cost of the goods replaced is $3,500. Therefore, the correct journal entry is:

Debit: Warranty Expense - $2,480 (4% of $62,000)
Credit: Inventory - $3,500

Option A is incorrect because it only debits Warranty Expense, but does not credit Inventory.
Option C is incorrect because it debits Warranty Expense for the full amount of $3,500, which is incorrect. The warranty expense should only be based on the estimated percentage of sales.
Option D is incorrect because it only credits Inventory, but does not debit Warranty Expense.

Ragas,Incsold Goods with a Selling Price of $62,000 in the 2017