Question

McKay Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 1,200 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2. In the Year 1 income statement, McKay should show warranty expense of

Answer 1

Warranty Expenses is a expenses which is incurred after the selling of product,

Product is sold with a one year warranty means all the warranty cost proposed will be debited only in one year.

So Year 1 sale = 1200 Units and warranty cost is average $ 10 Per unit sold

So warranty Expenses = 1200 Units * $ 10 Per Unit = $ 12,000

So Mckay should show warranty expens in year 1 = $12,000

Answer = $ 12,000