Armadillo Appliances sells new and reconditioned kitchen and laundry appliances. Armadillo sold a reconditioned refrigerator for $1,100 on Oct 25, 20X4, with a one-year warranty covering parts and labour. Warranty expense is estimated at 5% of the selling price, and the appropriate adjusting entry is recorded at Dec 31, 20X4. On January 6, 20X5, the refrigerator is returned for warranty repairs. This cost Armadillo $25 in parts and $20 in labour. When recording the January 6, 20X5 transaction, Armadillo would debit warranty expense with
A) $45
B) $0
C) $55
D) $25

Question

Quizplus · Accepted Answer

The warranty expense was already estimated and recorded at the time of sale, so the actual repair costs are applied against the previously established warranty liability, not expensed again.

Armadillo Appliances Sells New and Reconditioned Kitchen and Laundry Appliances