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
