Question

During 2013, gardner home center sold 800 power washers for $350 each. the power washers carry a 2-year warranty for repairs. estimates indicate that repair costs will average 2% of sales. how much warranty expense should be accrued as a result of the 2013 sales of this product?

a. $2,800
b. no liability should be recorded until units are brought in for repairs.
c. $5,600
d. $8,400

Answer 1

If Gardner Home Center sold 800 power washers for $350 each, this sums up to an amount of $280,000. However, the power washers carry a 2-year warranty for repairs, estimating a repair costs averaging 2% of sales. Extracting 2% from $280,000 amount of gives us a value of $5,600. Therefore the answer is option C. $5,600 - which must be recorded because the sale took place.