Jumbo Sales Corporation offers warranties on all their electronic goods. Warrant

Question

Jumbo Sales Corporation offers warranties on all their electronic goods. Warranty expense is estimated at 3% of sales revenue. In 2017, the company had $602,000 of sales. In the same year, it paid out $12,000 of warranty payments. Which of the following is the entry needed to record the estimated warranty expense?

A) Warranty Expense 18,060

                   Sales Revenue 18,060

B) Warranty Expense 12,000

                  Estimated Warranty Payable 12,000

C) Estimated Warranty Payable 12,000

                    Cash                               12,000

D) Warranty Expense 18,060

                  Estimated Warranty Payable 18,060

Explanation / Answer

D) Warranty Expense 18,060

Estimated Warranty Payable 18,060.

Explanation:- Warranty expenses is estimated at 3 % of $ 602000 which is equal to $ 18060. It would be recorded on accrual basis by way of following journal entry:-

   Warranty expenses A/c Dr. 18060

To Estimated warranty payable A/c 18060

Conclusion:- Option D).

Warranty Expense 18,060

Estimated Warranty Payable 18,060

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