Asked by Briana Arredondo on Jul 01, 2024
Verified
Excom sells radios and each unit carries a two-year replacement warranty. The cost of repair defects under the warranty is estimated at 5% of the sales price. During September, Excom sells 100 radios for $50 each. One radio is actually replaced during September. For what amount in September would Excom debit Product Warranty Expense?
A) $50
B) $250
C) $30
D) $120
Product Warranty Expense
Costs associated with repairing or replacing products under warranty, recognized as an expense by companies.
Replacement Warranty
A guarantee that if a product fails or breaks down within a specified period, it will be replaced at no cost to the customer.
- Record the costs associated with warranty and vacation pay in the financial statements.
- Incorporate the matching principle in managing the accounts of product warranties.
Verified Answer
DM
David Moore6 days ago
Final Answer :
B
Explanation :
The correct amount is $250 because Excom estimates the cost of repair defects under the warranty to be 5% of the sales price. With 100 radios sold at $50 each, the total sales are $5,000. 5% of $5,000 is $250, which is the amount Excom would debit to Product Warranty Expense for September.
Learning Objectives
- Record the costs associated with warranty and vacation pay in the financial statements.
- Incorporate the matching principle in managing the accounts of product warranties.
Related questions
The Journal Entry a Company Uses to Record the Estimated ...
The Journal Entry a Company Uses to Record Accrued Vacation ...
Estimating and Recording Product Warranty Expense in the Period of ...
A Company Sold $12,000 Worth of Bicycles with an Extended ...
A Company Sold $12,000 Worth of Bicycles with an Extended ...