A company sold $12,000 worth of bicycles with an extended warranty. The
company's experience is that warranty expense averages 2% of sales. The current
period's entry to record the warranty expense is:
Debit Warranty Expense $240; credit Cash $240.
Debit Estimated Warranty Liability $240; credit Cash $240.
Debit Sales Allowances $240; credit Estimated Warranty Liability $240.
Debit Prepaid Warranties $240; credit Warranty Expense $240.
Debit Warranty Expense $240; credit Estimated Warranty Liability $240.