Question

Evergreen Roofing had cash sales for the month totaling $42,000. Evergreen offers a 1-year warranty on its roofing services. If Evergreen estimates warranty claims will equal 3% of sales, the journal entry to record the estimated warranty expense for the month is:

A. debit warranty expense $1,260; credit Cash $1,260.

B. debit warranty expense $1,260; credit Sales Revenue $1,260.

C. debit warranty expense $1,260; credit accrued warranty payable $1,260.

D. debit accrued warranty payable $1,260; credit warranty expense $1,260.

Answer 1

The estimated warranty expense for Evergreen Roofing's cash sales should be recorded by debiting warranty expense and crediting accrued warranty payable with $1,260, which corresponds to 3% of the month's sales.

Step-by-step explanation:

The journal entry to record the estimated warranty expense for Evergreen Roofing, given that cash sales totaled $42,000 and the estimated warranty claims are 3% of sales, would be:

• Debit warranty expense $1,260
• Credit accrued warranty payable $1,260

This journal entry reflects the matching principle in accounting where expenses are matched with the revenues they help generate. In this case, the warranty expense is an anticipated future cost associated with the current month's sales, so Evergreen should record this expense in the same period as the sales. By doing this, they are acknowledging the future obligation that arises from giving a warranty on their roofing services.

Option C is the correct answer: debit warranty expense $1,260; credit accrued warranty payable $1,260.