Scout Company Estimated Warranty Expense
Calculating Warranty Expense
According to the data provided, Scout Company sold $15,000 worth of merchandise in September with a three-month warranty. The cost to repair defects under warranty is estimated at 5% of the sales price. To calculate the warranty expense for September, we need to determine 5% of the sales amount:
Sales: $15,000
Warranty Expense = 5% of Sales
Warranty Expense = 0.05 x $15,000 = $750
Journal Entry for Warranty Expense
The journal entry to record the estimated warranty expense for the month of September will include a debit to the Product Warranty Expense account for $750. This entry ensures that the estimated warranty cost is recognized in the same period as the sale.
Debit: Product Warranty Expense - $750
Credit: -
By recording the warranty expense, Scout Company recognizes the cost associated with providing warranty coverage to customers. This expense is an important factor in determining the overall profitability of the company.