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 customer warranty repairs is:
A) Debit Warranty Expense $17,800; credit Estimated Warranty Liability $17,800.
B) Debit Warranty Expense $9,400; credit Estimated Warranty Liability $9,400.
C) Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400.
D) Debit Estimated Warranty Liability $9,400; credit Parts Inventory $9,400.
E) Debit Estimated Warranty Liability $17,800; credit Parts Inventory $17,800.

Question

Quizplus · Accepted Answer

The correct entry to record the customer warranty repairs involves debiting the Estimated Warranty Liability account and crediting the Parts Inventory account for the cost of the parts used in the repairs, which is $9,400. This reflects the usage of the previously recognized liability to cover actual warranty expenses.

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