Question

Wright Company sells merchandise with a one-year warranty. In the current year, sales consisted of 2,000 units. It is estimated that warranty repairs will average $15 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, Wright should show warranty expense of?

Answer 1

Answer:

$30,000

Explanation:

In this question, the matching account principle is used which means the total revenue is matched with the total expenses in a given year.

The computation of the warranty expense is shown below:

= Number of selling units × average unit sold per unit

= 2,000 unit × $15 per unit

= $30,000

The whole amount $30,000 should be recorded as warranty expense