Vargas Company Sold Goods with a Selling Price of $50,000 $$\begin{array} { | c | l | l | } \hline \text { Estimated Warranty Payable } & 1500 & \\\hline \text { Cash } & & 1500 \\\hline\end{array}$$

question 112

Multiple Choice

Vargas Company sold goods with a selling price of $50,000 in 2019 and estimated 5% warranty expense for the year.Customers complained of defects,and goods with a cost of $1500 had to be replaced.Which of the following is the correct journal entry for honoring the warranties with goods?

• A) \[\begin{array} { | c | l | l | }
• \hline \text { Estimated Warranty Payable } & 1500 & \\
• \hline \text { Cash } & & 1500 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | c | l | l | }
• \hline \text { Estimated Warranty Payable } & 1500 & \\
• \hline \text { Merchandise Inventory } & & 1500 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | c | l | l | }
• \hline \text { Warranty Expense } & 1500 & \\
• \hline \text { Merchandise Inventory } & & 1500 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | l | l | }
• \hline \text { Estimated Warranty Payable } & 1500 & \\
• \hline \text { Warranty Expense } & & 1500 \\
• \hline
• \end{array}\]

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Definitions:

Deficit

An economic condition where expenditures exceed revenue, common in government budgets.

Surplus

A situation where the quantity supplied of a good or service exceeds the quantity demanded at the current price.

Deflationary Gap

A situation where total spending (aggregate demand) in an economy is lower than the level required to sustain full employment output, leading to deflation and unemployment.

Equilibrium GDP

The level of Gross Domestic Product at which aggregate supply equals aggregate demand, leading to an economy operating at full capacity without inflationary pressures.