Question

The balance of the Estimated Warranty Liability account was $12,000 on January 1, 2018, and $13,600 on December 31, 2018. Based on an analysis of warranty claims during the past several years, this year's warranty expense was established at 3% of sales, and sales during the year were $800,000.

Required:

a. What amount of warranty expense will appear on the income statement for the year ended December 31, 2018?

b. What were the actual costs of servicing products under warranty during the year?

Answer 1

We need to prepare the T-account of Estimated Warranty Liability Account to find out both the answers:

Estimated Warranty Liability (Year 2018)
		Beginning Balance Jan 1, 2018	$12,000
2018 Servicing Expense (balancing figure)	$10,400	Warranty Expenses Year 2018 (Estimated total cost of Warranty $800,000*3%)	$24,000
Ending Balance Dec 31, 2018	$13,600
	$24,000		$24,000

Part a - amount of warranty expense will appear on the income statement for the year ended December 31, 2018 = $24,000

Part b – Actual Servicing Cost under warranty during the year = $10,400

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