During August, Arena Company sells $356,000 in product that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a balance of $12,800 before adjustment. Customers returned product for warranty repairs during the month that used $9,400 in parts for repairs. The entry to record the estimated warranty expense for the month is:
A) Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B) Debit Warranty Expense $5,000; credit Estimated Warranty Liability $5,000.
C) Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D) Debit Estimated Warranty Liability $9,400; credit Warranty Expense $9,400.
E) Debit Estimated Warranty Liability $17,800; credit Warranty Expense $17,800.

Question

Quizplus · Accepted Answer

The estimated warranty expense is 5% of the selling price, which is $356,000 * 5% = $17,800. The entry to record the estimated warranty expense is to debit Warranty Expense for $17,800 and credit Estimated Warranty Liability for $17,800.

During August, Arena Company Sells $356,000 in Product That Has