Question

Volt Electronics sells equipment that includes a three-year warranty. Repairs under the warranty are performed by an independent service company under a contract with Volt. Based on prior experience, warranty costs are estimated to be $25 per item sold. Volt should recognize these warranty costs:a. When the equipment is sold. b. When the repairs are performed. c. Evenly over the life of the warranty. d. When payments are made to the service firm.

Answer 1

a. When the equipment is sold.

Step-by-step explanation:

As we know that

When someone sells or purchase a product, the services are attached to the product which is passed from the buyer to the seller that can be in terms of warranty i.e after-sales services, etc

So according to the given situation, the estimation of the warranty cost is $25 per time sold so the warranty cost should be recognized when the equipment is sold as it is attached to the product