The accounting records of Earthtone Ceramics included the following balances at the end of the period:

In the past, Earthtone’s warranty expense has been 8% of sales. During 2012, the business paid $7,000 to satisfy the warranty claims.

Requirements
1. Journalize Earthtone’s warranty expense for the period and the company’s cash payments to satisfy warranty claims. Explanations are not required.
2. Show what Earthtones will report on its income statement and balance sheet for this situation.
3. Which data item from Requirement 2 will affect Earthtone’s current ratio? Will Earthtone’s current ratio increase or decrease as a result of thisitem?

Transcribed Image Text:

Estimated Warranty Payable Beg bal 5,000 Sales Revenue Warranty Expense 111.000