Question

Reformulating Financial Statements For Warranty Expense

Over the past four years, Hashwari Corporation reported sales revenue and warranty expense as follows.

		2014	2015	2016	2017
Sales revenue		$4,800,000	$5,000,000	$5,182,000	$5,504,920
Warranty expense		98,700	97,600	112,000	101,900

We wish to reformulate the income statement to reflect a constant proportion of warranty expense to sales over the four-year period. What is our warranty expense adjustment for each year?

Compute the average warranty expense to sales rate for the past four years.

Round your answer to two decimal places (ex: 0.02345 = 2.35%).

Answer

%

Using your rounded answer, compute the adjusted warranty expense for each year.

Round answers to the nearest whole number.

Use a negative sign to indicate if the adjustment decreases an account balance.

		2014	2015	2016	2017
Adjusted expense		$Answer	$Answer	$Answer	$Answer
Adjustment required		Answer	Answer	Answer	Answer

Answer 1

	2014	2015	2016	2017
Sales Revenue	$4,800,000	$5,000,000	$5,182,000	$5,504,920
Warranty Expense	98700	97600	112000	101900
Warranty expense to sales rate	2.06%	1.95%	2.16%	1.85%
Average of 4 years warranty expense to sales rate		2.06%+1.95%+2.16%+1.85%/4
	2.01%
New Warranty Expense- Adjusted Expense	$96,480.00	$100,500.00	$104,158.20	$110,648.89
Adjustment Required	($2,220.00)	$2,900.00	($7,841.80)	$8,748.89
Negative Implies reduction in cost and positive implies increase in cost