Question

Idaho Company sells 20,000 units of inventory during the first year of operations for $200 each. Idaho Company provides a one-year warranty on parts. It is estimated that 2% of the units will be defective and that repair costs are estimated to be $30 per unit. In the year of sale, warranty contracts are honored on 50 units for a total cost of $1,500. What amount will be reported as Estimated Warranty Liability at the end of the year

Answer 1

the amount that would be reported as Estimated Warranty Liability at the end of the year is $10,500

Step-by-step explanation:

The computation of the liability reported as estimated warranted liability is given below:

= (Defective cost - units honored) × estimated repair cost

= (20,000 units × 2% - 50 units) × $30 per unit

= (400 units - 50 units) × $30 per unit

= $10,500

Hence, the amount that would be reported as Estimated Warranty Liability at the end of the year is $10,500