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 117 radios for $48 each. One radio is actually replaced during September. For what amount in September would Excom debit Product Warranty Expense

Answer 1

Answer:

$48

Explanation:

A replacement indicates that the originally sold radio was scrapped and completely replaced. Therefore, the cost of the new radio should be debited to Product Warranty Expense and not 5% of the sales price.

Therefore, $48 would be debited to Product Warranty Expense in September.

If the radio had been repaired instead of completely replaced, 5% of the cost would have been debited.