Question

Over the past four years, Hashwari Corporation reported sales revenue and warranty expense as follows.

2016 2017 2018 2019
Sales revenue $5,000,000 $5,200,000 $5,382,000 $5,704,920
Warranty expense 105,200 104,100 118,500 108,400
We wish to reformulate the income statement to reflect a constant proportion of warranty expense to sales over the four-year period. What is our warranty expense adjustment for each year?

Answer 1

Missing word "Average warranty to sales rate is 2.05%"

Adjusted expense and Adjustment required

2014 2015 2016 2017

Sales revenue $5,000,000 $5,200,000 $5,382,000 $5,704,920

Average warranty to sales rate 2.05% 2.05% 2.05% 2.05%

Adjusted warranty expense $102,500 $106,600 $110,331 $116,951

Actual warranty expense $105,200 $104,100 $118,500 $108,400

Adjustment required -$2,700 $2,500 -$8,169 $8,551