Question

During August, Boxer Company sells $364,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $12,000 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,600 in parts for repairs. The entry to record the estimated warranty expense for the month is: Multiple Choice Debit Estimated Warranty Liability $18,200; credit Warranty Expense $18,200. Debit Warranty Expense $6,200; credit Estimated Warranty Liability $6,200. Debit Warranty Expense $18,200; credit Estimated Warranty Liability $18,200. Debit Warranty Expense $14,800; credit Estimated Warranty Liability $14,800. Debit Estimated Warranty Liability $8,600; credit Warranty Expense $8,600.

Answer 1

Let's make clear the question:
"During August, Boxer Company sells $364,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $12,000 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,600 in parts for repairs. The entry to record the estimated warranty expense for the month is:
a) Debit Estimated Warranty Liability $18,200; credit Warranty Expense $18,200.
b) Debit Warranty Expense $6,200; credit Estimated Warranty Liability $6,200. c) Debit Warranty Expense $18,200; credit Estimated Warranty Liability $18,200.
d) Debit Warranty Expense $14,800; credit Estimated Warranty Liability $14,800.
e) Debit Estimated Warranty Liability $8,600; credit Warranty Expense $8,600."

First, calculate the average warranty expenses:
364000 × 5 ÷ 100 = 18200$

This amount has to be recorded both as a debit (debit warranty expenses) and as a credit (credit estimated warranty liability).

Therefore, the correct answer is:
c) Debit Warranty Expense $18,200; credit Estimated Warranty Liability $18,200.