Question

A company has a selling price of $1,800 each for its printers. Each printer has a 2 year warranty that covers replacement of defective parts. It is estimated that 2% of all printers sold will be returned under the warranty at an average cost of $150 each. During November, the company sold 30,000 printers, and 400 printers were serviced under the warranty at a total cost of $55,000. The balance in the Estimated Warranty Liability account at November 1 was $29,000. What is the company's warranty expense for the month of November?

Answer 1

The company's warranty expense for the month of November is -$24,000. The excess amount will reduce the balance in the Estimated Warranty Liability account.

Step-by-step explanation:

The company's warranty expense for the month of November can be calculated as follows:

1. Calculate the total cost of servicing printers under warranty: 400 printers x $150 = $60,000
2. Calculate the difference between the warranty expense and the balance in the Estimated Warranty Liability account at November 1: $60,000 - $29,000 = $31,000
3. Subtract the total cost of servicing printers under warranty during November from the calculated difference: $31,000 - $55,000 = -$24,000
4. The warranty expense for the month of November is -$24,000. This means that the company had a negative warranty expense, and the excess amount of $24,000 will reduce the balance in the Estimated Warranty Liability account.