Question

Southeast Plumbing had cash sales for the month totaling $732,000. Southeast offers a 6-month warranty on its services. If Southeast estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

A. debit Estimated warranty payable, $21,960; credit Warranty expense, $21,960.

B. debit Warranty expense, $21,960; credit Estimated warranty payable, $21,960.

C. debit Warranty expense, $21,960; credit Sales revenue, $21,960.

D. debit Warranty expense, $21,960; credit Cash, $21,960.

Answer 1

The correct journal entry to record Southeast Plumbing's estimated warranty expense of 3% of cash sales is a debit to Warranty Expense and a credit to Estimated Warranty Payable for $21,960.

Step-by-step explanation:

The student's question involves recording an estimated warranty expense for Southeast Plumbing. Since Southeast estimates warranty claims will equal 3% of cash sales totaling $732,000, the warranty expense would be 3% of $732,000 which is $21,960. The correct journal entry would be a debit to Warranty Expense for $21,960 and a credit to Estimated Warranty Payable for $21,960. This reflects the matching principle, recognizing the expense in the same period as the associated revenue.

The answer is: B. debit Warranty Expense, $21,960; credit Estimated Warranty Payable, $21,960.