Question

During the month, Southeast Plumbing paid $600 to settle warranty claims. Southeast uses an estimated warranty account. The journal entry to record the payment would have been:

A. debit Estimated warranty payable, $600; credit Warranty expense, $600.

B. debit Warranty expense, $600; credit Cash, $600.

C. debit Warranty expense, $600; credit Estimated Warranty payable, $600.

D. debit Estimated warranty payable, $600; credit Cash, $600.

Answer 1

The correct journal entry for Southeast Plumbing's payment of $600 to settle warranty claims is a debit to the Estimated Warranty Payable account and a credit to Cash, reflecting the cash payment of a previously estimated liability.

Step-by-step explanation:

When Southeast Plumbing paid $600 to settle warranty claims, the correct journal entry to record the payment, given that Southeast uses an estimated warranty account, would be: Debit Estimated warranty payable, $600; credit Cash, $600. This entry reflects the payment of a liability that the company had previously estimated and recorded. No expense is recognized at this time because the expense was previously recorded when the company estimated the warranty liability. Instead, the company is reducing its liability (Estimated Warranty Payable) and cash balance to reflect the actual cash outflow. The correct journal entry for Southeast Plumbing's payment of $600 to settle warranty claims is a debit to the Estimated Warranty Payable account and a credit to Cash, reflecting the cash payment of a previously estimated liability.