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17 December, 04:45

A company estimates that warranty expense will be 2% of sales. The company's sales for the current period are $176,000. The current period's entry to record the warranty expense is: Multiple Choice Debit Warranty Expense $3,520 credit Estimated Warranty Liability $3,520. Debit Estimated Warranty Liability $3,520 credit Cash $3,520. No entry is recorded until the items are returned for warranty repairs. Debit Warranty Expense $3,520 credit Sales $3,520.

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  1. 17 December, 07:26
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    The answer is

    Dr Warranty Expense $3,520

    Cr Estimated Warranty Liability $3,520

    Explanation:

    Warranty expense is a contingent liability and it is defined as liabilities that may be incurred by a firm or business depending on the outcome of an uncertain future circumstance.

    Current sales = $176,000

    Warranty expense = $3,520 (2% of $176,000).

    The rule: Debit increases assets and expenses while credit reduces it.

    Credit increases equity (stock), sales (revenue) and liabilities while debit reduces it.

    Therefore the period entry is

    Dr Warranty Expense $3,520

    Cr Estimated Warranty Liability $3,520
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