Question

Monthly sales are $530,000. Warranty costs are estimated at 5% of monthly sales. Warranties are honored with replacement products. No defective products are returned during the month. At the end of the month, the company should record a journal entry with a credit to:

Answer 1

Credit to Estimated Warranty Payable for $26,500

Step-by-step explanation:

Based on the information given we were told that the Monthly sales were the amount of $530,000 in which the Warranty costs are estimated at 5% of the monthly sales which means that at the end of the month, the company should record a journal entry with a credit to: Estimated Warranty Payable for the amount of $26,500 which is calculated as:

Estimated Warranty Payable=$530,000 × 5%

Estimated Warranty Payable = $26,500