Question

Excom sells radios and each unit carries a two-year replacement warranty. The cost of repair defects under the warranty is estimated at 5% of the sales price. During September, Excom sells 100 radios for $50 each. One radio is actually replaced during September. For what amount in September would Excom debit Product Warranty Expense?

Answer 1

Answer:

$150

Explanation:

The Warranty Expense account is a liability account and it must include all the estimate costs associated to the merchandise sold:

100 radios were sold and the company estimates to replace 5% or them = 100 x 5% = 5 radios

the cost of replacing 5 radios = 5 radios x $30 per radio = $150