Question

Analyzing and Computing Accrued Warranty Liability and Expense Canton Company sells a motor that carries a 60-day unconditional warranty against product failure. From prior years' experience, Canton estimates that 3% of units sold each period will require repair at an average cost of $160 per unit. During the current period, Canton sold 100,000 units and repaired 2,400 of those units. (a) How much warranty expense must Canton report in its current period income statement? (b) What warranty liability related to current period sales will Canton report on its current period-end balance sheet?

Answer 1

Answer:

a. Warranty expense $480,000

b.  Warrant liability $96,000

Explanation:

Solution-a

Warranty expense = 3%*100,000*$160

Warranty expense = $480,000

Solution-b

Warranty liability = $480,000 -($160*2,400)

Warranty liability = $96,000