Question

TNT Construction had cash sales for the month of June totaling $44,000. TNT offers a 1-year warranty on its construction services. If TNT estimates warranty claims will equal 5% of sales, the journal entry to record the estimated warranty expense for the month is:

A. debit Warranty expense, $2,200; credit Sales revenue, $2,200.

B. debit Warranty expense, $2,200; credit Estimated warranty payable, $2,200.

C. debit Warranty expense, $2,200; credit Cash, $2,200.

D. debit Estimated warranty payable, $2,200; credit Warranty expense, $2,200.

Answer 1

TNT Construction must record the estimated warranty expense by debiting Warranty Expense for $2,200 and crediting Estimated Warranty Payable for $2,200, which is 5% of the $44,000 sales for June.

Step-by-step explanation:

TNT Construction must record the estimated warranty expense by debiting Warranty Expense for $2,200 and crediting Estimated Warranty Payable for $2,200, which is 5% of the $44,000 sales for June. When TNT Construction estimates warranty claims to be 5% of their cash sales for the month of June, which amounted to $44,000, the company is preparing for future warranty service costs that are related to the sales made in that month. The correct journal entry to record this estimated future expense would be to debit the Warranty Expense account for the estimated amount of the claims, and then credit a liability account titled Estimated warranty payable for the same amount. As 5% of the $44,000 sales is $2,200, the appropriate journal entry is option B: Debit Warranty Expense, $2,200; Credit Estimated Warranty Payable, $2,200.