A.) Smith Company sells televisions, and customers receive an 18-month warranty on every television sold. Based on past experience, Smith estimates that warranty expenses will be 6% of sales. In the year ending December 31, 2021, Smith had television sales of $62,500. Select the journal entry to recognize the warranty expense for the 2021 sales.

Some choices are would never be correct accounting.

1.)

		DEBIT	CREDIT
Estimated warranty liability		3,750
Warranty expense			3,750

2.)

		DEBIT	CREDIT
Warranty expense		3,750
Estimated warranty liability			3,750

3.) No entry needed until repairs are made.

4.)

		DEBIT	CREDIT
Sales revenue		3,750
Warranty expense			3,750

B.) Wakefield sells washing machines with a 12-month warranty. For matching purposes, Wakefield estimates and records warranty expense and estimated warranty liability in the year of the sale. For the washing machines sold in 2019, Wakefield accrued year-end estimates as follows:

Dec. 31, 2019	Debit	Credit
Warranty expense	3,600
Estimated warranty liability		3,600

Time passes. In 2020, Wakefield performed repairs on washing machines that were sold the previous year. The cost of these repairs was $600 in spare parts and $950 in wages. Select the journal entry that Wakefield should record in 2020 when the repairs are actually performed.

1.)

	DEBIT	CREDIT
Spare Parts inventory	600
Cash (or Wages payable )	950
Warranty expense		1,550

2.)

	DEBIT	CREDIT
Estimated warranty liability	1,550
Spare Parts inventory		600
Cash (or Wages payable )		950

3.)

	DEBIT	CREDIT
Estimated warranty liability	1,550
Warranty expense		1,550

4.)

	DEBIT	CREDIT
Warranty expense	1,550
Spare Parts inventory		600
Cash (or Wages payable )		950