Question

Ming Corporation sells $100,000 goods on account to customers. Ming estimates that warranties will be 3% of sales. At the end of the year, Ming will require which of the following entries for warranties?

a. Debit Warranties Expense, Credit Cash

b. Debit Cash, Credit Warranties Payable

c. Debit Sales, Credit Warranties Receivable

d. Debit Warranties Expense, Credit Accounts Payable

Answer 1

The correct entry for warranty expenses related to sales is to debit Warranties Expense and credit Accounts Payable, reflecting the cost Ming Corporation expects to incur for future warranty claims arising from current sales.

Step-by-step explanation:

The question relates to accounting for warranty expenses in financial statements. When Ming Corporation sells goods, it estimates future warranty costs and needs to recognize this as an expense at the time of the sale, following the matching principle of accounting. The correct journal entry at the end of the year for warranty expenses would be:

• Debit Warranties Expense
• Credit Warranties Payable

This reflects the estimated future costs of warranties that Ming Corporation expects to incur as a result of current sales. Therefore, the answer to the question is:

d. Debit Warranties Expense, Credit Accounts Payable

However, 'Warranties Payable' might be a more precise term for the credit side, depending on the company's accounting practices. The answer assumes 'Accounts Payable' recognizes the liability for warranty claims.