A company has \$500,000 in sales and estimates warranty costs to be 5% of sales. What is the estimated warranty liability, and how does it impact the financial statements?

• A. Estimated warranty liability is \$25,000, recorded as a revenue and liability, increasing equity.
• B. Estimated warranty liability is \$50,000, recorded as an expense and liability, reducing equity.
• C. Estimated warranty liability is \$25,000, recorded as an expense and liability, reducing equity.
• D. Estimated warranty liability is \$50,000, recorded as an asset and liability, increasing equity.