Question

Hitzu Co. sold a copier costing $5,500 with a two-year parts warranty to a customer on August 16, 2017, for $11,000 cash. Hitzu uses the perpetual inventory system. On November 22, 2018, the copier requires on-site repairs that are completed the same day. The repairs cost $93 for materials taken from the repair parts inventory. These are the only repairs required in 2018 for this copier. Based on experience, Hitzu expects to incur warranty costs equal to 5% of dollar sales. It records warranty expense with an adjusting entry at the end of each year. 1. How much warranty expense does the company report in 2017 for this copier

Answer 1

$550

Step-by-step explanation:

Data provided

Total sales of 2017 = $11,000

Warranty percentage = 5%

The computation of warranty expense is given below:-

Warranty expense in 2017 = Total sales of 2017 × Warranty percentage

= $11,000 × 5%

= $550

Therefore for calculating the warranty expenses in 2017 we simply multiply the total sales of 2017 with warranty percentage.