During December, Vixen Company sells $859,000 in merchandise that has a one-year warranty.

During December, Vixen Company sells $859,000 in merchandise that has a one-year warranty. Warranty expense is estimated at 3% of sales. On January 5 of the following year, the merchandise requires repairs that are completed the same day. The repairs cost $14,900 for materials taken from parts inventory. The entry to record the estimated warranty liability at the end of December is:

 

Debit Estimated Warranty Liability $10,870; credit Warranty Expense $10,870.

Debit Estimated Warranty Liability $14,900; credit Warranty Expense $14,900.

Debit Warranty Expense $25,770; credit Estimated Warranty Liability $25,770.

Debit Warranty Expense $14,900; credit Estimated Warranty Liability $14,900.

Debit Warranty Expense $10,870; credit Estimated Warranty Liability $10,870.

 

ANSWER:  $25770

Debit Warranty Expense $25,770; credit Estimated Warranty Liability $25,770

merchandise sales=$850000

monthly average expenses as per experience=3%

therefore,

computation of estimated warrant liability =$859000*3%  =  $25770

Entry to record Estimated warrant liability =

Debt warranty Expense A/c Dr $25770

To estimated warrant liability A/c cr $25770

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