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What the adjusting entry for the embedded warranty will be

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Problem 1: Buck, Inc. sells inventory to customers with a two year embedded warranty that is not sold separately. During 2020 Buck sold 94,000 units of the products under warranty. Based on past experience Buck expects that 5% of the products will be returned for work that is covered during the 2 years and the average cost to fix these units will be $37 each. The adjusting entry for this embedded warranty for 2020 will be:

1) Debit Warranty Expense $173,900 credit Warranty Liability $173,900

2) Debit Warranty Expense $ 86,950 credit Warranty Liability $86,950

3) Debit Warranty Liability $173,900 credit Warranty Expense $173,900

4) Debit Warranty Liability $86,950 credit Cash $86,950

Reference no: EM132796832

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