Autotether Inc

Multiple Choice

Autotether Inc. sells 1200 units of a product that has a one-year warranty on parts. The average cost of honoring one warranty contract is $60. During the year 60 contracts are honored at a cost of $3600. It is estimated that 120 contracts will be honored in the following year. The adjusting entry at the end of the current year will include a

A) credit to Warranty Liability for $7200.
B) credit to Warranty Liability for $10800.
C) debit to Warranty Expense for $3600.
D) debit to Warranty Expense for $10800.