During August, Boxer Company sells $364,000 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 $12,000 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,600 in parts for repairs. The entry to record the estimated warranty expense for the month is: Multiple Choice Debit Estimated Warranty Liability $18,200; credit Warranty Expense $18,200. Debit Warranty Expense $6,200; credit Estimated Warranty Liability $6,200. Debit Warranty Expense $18,200; credit Estimated Warranty Liability $18,200. Debit Warranty Expense $14,800; credit Estimated Warranty Liability $14,800. Debit Estimated Warranty Liability $8,600; credit Warranty Expense $8,600.
Accepted Solution
A:
Let's make clear the question: "During August, Boxer Company sells $364,000 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 $12,000 before adjustment. Customers returned merchandise for warranty repairs during the month that used $8,600 in parts for repairs. The entry to record the estimated warranty expense for the month is: a) Debit Estimated Warranty Liability $18,200; credit Warranty Expense $18,200. b) Debit Warranty Expense $6,200; credit Estimated Warranty Liability $6,200. c) Debit Warranty Expense $18,200; credit Estimated Warranty Liability $18,200. d) Debit Warranty Expense $14,800; credit Estimated Warranty Liability $14,800. e) Debit Estimated Warranty Liability $8,600; credit Warranty Expense $8,600."
First, calculate the average warranty expenses: 364000 × 5 ÷ 100 = 18200$
This amount has to be recorded both as a debit (debit warranty expenses) and as a credit (credit estimated warranty liability).
Therefore, the correct answer is: c) Debit Warranty Expense $18,200; credit Estimated Warranty Liability $18,200.