Question

The accounting records of Prestige Auto Repair Prestige Auto Repair showed a balance of $ 6 comma 700 $6,700 in Estimated warranty payable at December​ 31, 2017 2017. In the​ past, Prestige Auto Repair's Prestige Auto Repair's warranty expense has been 2 2 percent of sales. During 2018 2018​, Prestige Auto Repair Prestige Auto Repair made sales of $ 431 comma 000 $431,000 on account and paid $ 9 comma 800 $9,800 to satisfy warranty claims.

Answer 1

Estimated warranty payable at December​ 31, 2017 = $6,700

Sales during 2018 = $431,000

Warranty expense = 2.2 percent of sales

Estimated warranty liability for 2018 = Sales x Estimated warranty expense

= 431,000 x 2.2%

= $9,482

Warranty claims settled during 2018 = $9,800

Estimated warranty payable at December​ 31, 2018 = Estimated warranty payable at December​ 31, 2017 + Estimated warranty liability for 2018 - Warranty claims settled during 2018

= 6,700 + 9,482 - 9,800

= $6,382

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