1 points QUESTION 4 Prospect Company began operations on May 1,2017, and experie

Question

1 points QUESTION 4 Prospect Company began operations on May 1,2017, and experienced t he following events during the year: 1 Purchased $80,000 of merchandise inventory for cash d all the merchandise for $120,000 cash and guaranteed the merchandise sold to be free from 3 Paid $25,000 cash for salaries expense 4 | Estimated future warranty liability of $1,200 ( 1% of sales 5 Paid $800 cash to repair defective merchandise returned by a customer After Prospect Company makes the necessary adjusting and closing entries at the end of 2017, what is the ending balance in its Warranties Payable account? C a $400 debit b, $400 credit C$1,200 debit d$1,200 credit C 1 points

Explanation / Answer

Warranty Payable account ending balance should be $1,200 Credit

Since the future warranty liability is estimated by the company is 1% of Sales i.e. $1,200, so the Warranty Payable Accounts balance should be adjusted to make credit balance as esimated amount i.e $1,200 Credit.

hence, correct option is d. $1,200 Credit

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