Moore Company Estimates Its Annual Warranty Expense as 4% of Annual

Short Answer

Moore Company estimates its annual warranty expense as 4% of annual net sales.The following data relate to the calendar year 2007: $\begin{array}{lr}\text { Net sales } & \$ 1,500,000 \\\text { Warranty liability account } & \\\text { Balance, Dec. 31,2007 } & \$ 10,000&\text { debit before adjustment } \\\text { Balance, Dec. 31,2007 } & 50,000&\text { credit after adjustment }\\\end{array}$ Which one of the following entries was made to record the 2007 estimated warranty expense? $\begin{array} { l } \text {a. Warranty Expense }&60,000\\ \text {Retained Earnings (prior-period adjustment) }&&10,000\\ \text { Warranty Liability}&&50,000\\ \text {b. Varranty Expense }&50,000\\ \text { Retained Earnings (prior-period adjustment)}&10,000\\ \text { Warranty Liability}&&60,000\\ \text { c. Warranty Expense}&40,000\\ \text { Varranty Liability}&&40,000\\ \text { d. Varranty Expense}&60,000\\ \text { Varranty Liability}&&60,000\\\end{array}$