Question

Research Company sells merchandise with a one year warranty. In the current year, sales consisted of 2,044 units. It is estimated that warranty repairs will average $11 per unit sold, and 30% of the repairs will be made in the current year and 70% in the next year. In the current year's income statement, Research should show warranty expense of

Select the correct answer.
a. $6,745
b. $22,484
c. $15,739
d. $0

Answer 1

A) $6,745.20

Step-by-step explanation:

The total warrant liability should equal to the number of units sold times the estimated warranty repairs per unit = 2,044 units sold x $11 per unit = $22,484

Current year's warranty expenses = total warranty liability x 30% = $6,745.20

Research company must debit $6,745.20 to the warranty expense account (which is included in the income statement).