Question

Maas, Inc., sells washers and dryers that include a maximum one-year warranty covering parts. Past experience shows that warranty expense averages about 2 percent of the selling price of each washer and dryer. Net sales totaled $400,000 during the year ending December 31. Prepare the December 31 adjusting entry for Maas by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Answer 1

Answer:

See explanation section

Explanation:

Journal entry to be recorded -

Debit    Warranty expense          $8,000

Credit   Estimated warranty liability         $8,000

Calculation:

Net sales = $400,000

warranty expenses = 2% of the net selling price.

Therefore, estimated warranty expense = $400,000 × 2% = $8,000

Since, the company does not pay the expenses, a liability arises. Since we are estimating the value from past experience, the liability will be estimated.