The following information applies to questions 12 & 13: Product Y is sold with a warranty offering free replacement if the product fails within one year of use. The product costs $50 to produce, and it is estimated that 2% of units sold will fail and be replaced.

1. How much Product Warranty Expense should be recorded for a month in which 500 units were sold?

a. $10 b. $500 c. $5,000 d. $50

2. If 12 units of Product Y were actually replaced during the month, the journal entry to record this would include:

a. a debit to Estimated Product Warranty Liability for $600 b. a debit to Inventory for $600 c. a credit to Cash for $600 d. a debit to Warranty Expense for $600