Question

uring 2020, Hans Electronics sold 350 microwaves each at $1,050 per unit. Each microwave has one-year warranty. Hans estimates it will cost them $82 per unit, if a unit is brought in under warranty for repair. During 2020, Smith spent $17,500 on warranty costs for the appliances sold in 2020. At the end of the 2020 the warranty liability and the warranty expense related to these sales would be

Multiple Choice

• Warranty liability: 17,500; Warranty expense: 17,500

• Warranty liability: 15,500; Warranty expense: 15,500

• Warranty liability: 11,200; Warranty expense: 28,700

• Warranty liability: 11,200; Warranty expense: 17,500

• Warranty liability: 17,500; Warranty expense: 15,200

Answer 1

Number of units sold = 350

Estimated warranty cost per unit = $82

Warranty expense = Number of units sold x Estimated warranty cost per unit

= 350 x 82

= $28,700

Estimated warranty liability = $28,700

Warranty liability met during 2020 = $17,500

Estimated warranty liability at the end of year 2020 = Estimated warranty liability - Warranty liability met during 2020

= 28,700-17,500

= $11,200

At the end of the 2020 the warranty liability and the warranty expense related to these sales would be Warranty liability: 11,200; Warranty expense: 28,700.

Third option is correct.