'No Rust' Car Sales Provides a One Year Labour and Parts

Multiple Choice

'No Rust' car sales provides a one year labour and parts warranty with every car sold and at the start of 2012 had a provision of $16 000 to cover warranty claims. On 30 March 2012 $2700 was paid out for repairs for vehicles under warranty. What is the correct accounting entry to record the payment of the claims?

A) Debit warranty expense $2700; credit provision for warranties $2700
B) Debit provision for warranties $2700; credit bank $2700
C) Debit provision for warranties $2700; credit warranty expense $2700
D) Debit warranty expense $2700; credit bank $2700