Question

During the month, Evergreen Roofing settled $600 in warranty claims by replacing the defective flashing. Evergreen uses an estimated warranty account. The journal entry to record the settled claims would have been:

A. debit Accrued Warranty Payable $600; credit Inventory $600.

B. debit Warranty Expense $600; credit Accrued Warranty Payable $600.

C. debit Accrued Warranty Payable $600; credit Cash $600.

D. debit Warranty Expense $600; credit Cash $600.

Answer 1

To record Evergreen Roofing's settled warranty claims by replacing defective flashing, the journal entry would debit Accrued Warranty Payable and credit Inventory, both by $600.

Step-by-step explanation:

The question relates to recording a transaction for settling warranty claims in accounting. When Evergreen Roofing replaces defective flashing and settles a warranty claim worth $600, the correct journal entry would be:

Debit Accrued Warranty Payable $600; Credit Inventory $600

This entry reduces the liability for warranties that the company had previously estimated and recorded (Accrued Warranty Payable) and also represents the outflow of inventory that was used to replace the defective flashing. It is important to note that the cost of inventory is being expensed as it is used to fulfill the warranty claim, rather than when it was initially purchased.