Question

Cycle​ Haven, Inc. offers warranties on all their bikes. They estimate warranty expense at​ 4.5% of sales. At the beginning of​ 2017, the Estimated Warranty Payable account had a credit balance of​ $2,200. During the​ year, Cycle Haven had​ $305,000 in sales and had to pay out​ $6,000 in warranty payments. How much Warranty Expense will be reported on the 2017 income

Answer 1

Answer:

$13,725

Explanation:

The movement in the warranty payable account over a period is as a result of the warranty expense for the period and the warranty payments made during the period.

Given that the company estimate warranty expense at​ 4.5% of sales, the estimated warranty for the period is the expense recorded in the income statement. This is equivalent to

= 4.5% * $305,000

= $13,725