A Company Sold $12,000 Worth of Bicycles with an Extended

Multiple Choice

A company sold $12,000 worth of bicycles with an extended warranty. The company's experience is that warranty expense averages 2% of sales. The current period's entry to record the warranty expense is:

A) Debit Prepaid Warranties $240; credit Warranty Expense $240.
B) Debit Sales Allowances $240; credit Estimated Warranty Liability $240.
C) Debit Estimated Warranty Liability $240; credit Cash $240.
D) Debit Warranty Expense $240; credit Cash $240.
E) Debit Warranty Expense $240; credit Estimated Warranty Liability $240.