Question

Assume that during May, a company sold a product for $160,000 that includes a 36-month warranty. Historically, the average cost of repairs over the warranty period is 7% of the sales price. The entry to record the estimated product warranty expense would include a __________ to __________ for $11,200.

Answer 1

Debit to product warranty expense

Step-by-step explanation:

As the company sold the product in the month of may and also include the 36 month warranty. The journal entry would be:

Cash A/c................................................Dr $ 160,000

Product warranty expense A/c.........Dr $11,200

To Sales A/c..................................Cr $171,200

As made a sale so cash is received therefore cash account is debited, along with sale offer product warranty and that will also be debited. It is against a sale of product. Hence, sale account is credited.

Working Note:

product warranty expense = Amount × 7%

= $160,000 × 7%

= $11,200