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:
A. Debit Sales Allowances $240; credit Estimated Warranty Liability $240.
B. Debit Warranty Expense $240; credit Cash $240.
C. Debit Estimated Warranty Liability $240; credit Cash $240.
D. Debit Prepaid Warranties $240; credit Warranty Expense $240.
E. Debit Warranty Expense $240; credit Estimated Warranty Liability $240.
Answer: E
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