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, and 30% of the repairs will be made in the current year and 70% in the next year. On the current year's income statement, Hall should show warranty expense of:

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, calculated by multiplying the total estimated warranty repairs cost of $38,280 by 30%, which is the percentage of repairs expected in the current year.

Step-by-step explanation:

The question asks us to calculate the warranty expense that should be shown on Hall Company's income statement for the current year based on the sales and estimated warranty repairs.

To calculate the warranty expense for the current year, we must consider the total number of units sold, the average cost of warranty repairs per unit, and the percentage of repairs expected to occur in the current year.

Now we can calculate the current year's warranty expense:

Total estimated warranty repairs cost: 2,552 units × $15/unit = $38,280

Current year's warranty expense: $38,280 × 30% = $11,484

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