Julia Used Cars Offers a One-Year Warranty from the Date

question 53

Multiple Choice

Julia Used Cars offers a one-year warranty from the date of sale on all cars it sells. From historic data, Bill Julia estimates that, on average, each car will require the company to incur warranty cost of $820. The cars sold for an average of $9,500 each. The following activities occurred during 2017.
$$\begin{array} { | l | l | l | } \hline \text { Feb } & 4 & \text { Sold five cars. } \\\hline \text { Mar } & 23 & \text { Sold ten cars. } \\\hline \text { May } & 20 & \text { Incurred warranty costs of \$6,000 an four cars sold in 2016. } \\\hline \text { July } & 6& \text { Sold eight cars. } \\\hline \text { Sep } & 1 & \text { Incurred warranty costs of \$5,000 on five cars sold in 2016. } \\\hline \text { Nov } & 14 & \text { Incurred warranty costs of \$4,000 on one car sold in 2016. } \\\hline \text { Dec } &2 2& \text { Sold twelve cars. } \\\hline\end{array}$$
If Julia accrued its warranty liability with a single adjusting entry at year-end, the journal entry would include:

• A)a debit to Warranty Liability for $28,700
• B)a debit to Warranty Expense for $28,700
• C)a credit to Parts for $17,220
• D)a credit to Cash for $28,700

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Definitions:

Last Dollar

The concept of last dollar refers to the final portion of funding or resources available for a project, initiative, or individual, often indicating the utilization of all available funds.

Minimize Costs

The process or strategy of reducing expenses to the lowest possible level while maintaining efficiency.

Last Dollar

The final unit of currency spent or invested in the completion of a transaction or project.

Marginal Product

The additional output produced by employing one more unit of a particular input, holding other inputs constant.