Question

Analyzing and Computing Accrued Warranty Liability and Expense Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure. From prior years' experience, Waymire estimates that 2% of units sold each period will require repair at an average cost of $125 per unit. During the current period, Waymire sold 70,000 units and repaired 1,000 of those units. (a) How much warranty expense must Waymire report in its current period income statement? $Answer (b) What warranty liability related to current period sales will Waymire report on its current period-end balance sheet? (Hint: Remember that some units were repaired in the current period.) $Answer

Answer 1

Answer:

a. $175,000

b. $50,000

Explanation:

a. The computation of the warranty expense is shown below:

= Given percentage × units sold × repair average cost

= 2% × 70,000 units × $125 per unit

= $175,000

b. The computation of the warranty liability is shown below:\

= (Given percentage ×  Units sold × repair average cost) - (Repaired units × repair average cost)

=  (2% × 70,000 units × $125 per unit) - (1,000 units × $125 per unit)

= (2% × $8,750,000) - ($125,000)

= $175,000 - $125,000

= $50,000