Question

Hall Company sells merchandise with a one-year warranty. In the current year, sales consisted of 4,500 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in the current year and 70% in the next year. In the current year's income statement, Hall should show warranty expense of:______
a. $13,500

b. $31,500

c. $0

d. $45,000

Answer 1

Answer:

d. $45,000

Explanation:

One of the principles of accounting concept- The income and expense matching concept states that costs should be accounted for in the period they were incurred.

Therefore, for warranties, they are expensed in the year product was sold.

Units sold for the hall is 4,500 units

Cost of depreciation per unit is $10/unit

The value of total depreciation amount will therefore be; units sold x depreciation per unit.

= 4,500 x $10

=$45,000

Total amount of depreciation is $45,000.