Question

Hall Company sells merchandise with a 1-year warranty. In the current year, sales consisted of 2,552 units. It is estimated that warranty repairs will average $15 per unit sold, with 30% of the repairs made in the current year and 70% in the next year. On the current year's income statement, what warranty expense should Hall show?

A. $11,484
B. $26,796
C. $0
D. $38,280

Answer 1

Hall Company should show a warranty expense of $11,484 on the current year's income statement.

Step-by-step explanation:

To calculate the warranty expense that Hall Company should show on the current year's income statement, we need to consider the estimated warranty repairs for this year and the next year. Given that warranty repairs will average $15 per unit sold and that 30% of the repairs are made in the current year, we can calculate the warranty expense as follows:

Total warranty repairs for the current year = 2,552 units * $15 = $38,280

Since only 30% of the repairs are made in the current year, the warranty expense should be 30% of the total warranty repairs for the current year: $38,280 * 0.3 = $11,484.