Scout Company Estimated Warranty Expense

Calculating Warranty Expense

According to the data provided, Scout Company sold $15,000 worth of merchandise in September with a three-month warranty. The cost to repair defects under warranty is estimated at 5% of the sales price. To calculate the warranty expense for September, we need to determine 5% of the sales amount:

Sales: $15,000

Warranty Expense = 5% of Sales

Warranty Expense = 0.05 x $15,000 = $750

Journal Entry for Warranty Expense

The journal entry to record the estimated warranty expense for the month of September will include a debit to the Product Warranty Expense account for $750. This entry ensures that the estimated warranty cost is recognized in the same period as the sale.

Debit: Product Warranty Expense - $750

Credit: -

By recording the warranty expense, Scout Company recognizes the cost associated with providing warranty coverage to customers. This expense is an important factor in determining the overall profitability of the company.