Question

Alpha Company sells widgets for $20 each. The widget has a one year warranty. Alpha estimates that 6% of the widgets will require repair during the warranty period. The estimated average repair cost is $4.30 per widget. On July 31, the Estimated Warranty Liability account had a normal balance of $15,000. During August, sales were $70,000. During August, 550 widgets were repaired under the warranty agreement with an actual cost of $4.50 each. Use this information to determine: 1. The August 31 Estimated Warranty Liability ending balance 2. The August Warranty Expense

Answer 1

Estimated Warranty Liability

Estimated Warranty Liability
		8/1/16 Beginning	$15,000
August Repair (550 * $4.50)	$2,475	August Sales	$903
		8/31/16 Ending Bal	$13,428

1) August Warranty Liability Ending Balance = $13,428

2) August Warranty Expense $903

Warranty Expense = $70,000 / $20 x 6% x $4.30 = $903

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