Question

During August, Boxer Company sells $354,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 5% of the selling price. The warranty liability account has a credit balance of $11,600 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8200 in parts for repairs. The entry to record the estimated warranty expense for the month is: Question 8 options: Debit Estimated Warranty Liability $8200; credit Warranty Expense $8200. Debit Estimated Warranty Liability $17,700; credit Warranty Expense $17,700. Debit Warranty Expense $6100; credit Estimated Warranty Liability $6100. Debit Warranty Expense $14,300; credit Estimated Warranty Liability $14,300. Debit Warranty Expense $17,700; credit Estimated Warranty Liability $17,700.

Answer 1

Debit Warranty Expense $14,300

Credit Estimated Warranty Liability $14,300

Step-by-step explanation:

With regards to the above, we are matching the warrant cost , which can be anytime in the future.

Expected warranty liability

= 5% of sales

= 5% × $354,000

= $17,700

Less;

Current balance

= $11,600 - $8,200

= $3,400

Adjustment

= $14,300

Here, the returned goods had a cost of $8,200 which is warranted against warrant liability, hence the balance reduces to $3,400