Answer:
The answer is
Dr Warranty Expense $3,520
Cr Estimated Warranty Liability $3,520
Explanation:
Warranty expense is a contingent liability and it is defined as liabilities that may be incurred by a firm or business depending on the outcome of an uncertain future circumstance.
Current sales = $176,000
Warranty expense = $3,520(2% of $176,000).
The rule: Debit increases assets and expenses while credit reduces it.
Credit increases equity(stock), sales(revenue) and liabilities while debit reduces it.
Therefore the period entry is
Dr Warranty Expense $3,520
Cr Estimated Warranty Liability $3,520
