Talk Unlimited began business on January 1, 2003. The company manufactures and sells cell phones cases
The company provides a warranty on its units, whereby the company will replace any defective case for two years after the sale, at no additional cost to the customer. During 2003, Talk Unlimited had sales of $850,000. The company estimates that the cost of the warranties will be 2% of sales. No warranty claims were made in 2003. During 2004, warranty claims of $15,700 were made. All warranty claims were satisfied and paid for. What journal entry, if any, is necessary for 2004 by Talk Unlimited?
A) No journal entry is necessary.
B) Liability for Warranties 15,700
Inventory 15,700
C) Prepaid Warranties 15,700
Inventory 15,700
D) Warranty Expense 15,700
Inventory 15,700
E) Unearned Warranties 15,700
Inventory 15,700
B
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