Question

A company sold $12,000 worth of bicycles with an extended warranty. the company's experience is that warranty expense averages 2% of sales. the current period's entry to record the warranty expense is:

Answer 1

Given the following parameters:

The company sold $12,000 worth of bicycles, with an extended warranty.

Average warranty expense is estimated to be 2% of sales.

 

The current period's entry to record the warranty expense is:

Warranty Expense $240
Estimated Warranty Liability $240
Rationale - 12,000 x 0.02 = 240