During the current year, Gardner Home Center sold 800 power washers for $350 each. The power washers carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of sales. How much warranty expense should be accrued at the end of the current year as a result of the sales of this product?a.$8,400b.$5,600c.$2,800d.No liability should be recorded until units are brought in for repairs.

Warranty Liability: Estimated liability is an exact dollar amount of debt or obligation which is valued at a later date. Product warranty liability is an example of estimated liability. Here, liability toward the customer can be estimated only when the warranty is honored.Calculate the warranty expense: Particulars Amount ($) Sales revenue (800 x $350) 280,000 Percentage of sales 2% Warranty expense 5,600 Therefore, the correct answer is option b) $5,600.

Answered: During the current year, Gardner Home…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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During the current year, Gardner Home Center sold 800 power washers for $350 each. The power washers carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of sales. How much warranty expense should be accrued at the end of the current year as a result of the sales of this product?

a.$8,400

b.$5,600

c.$2,800

d.No liability should be recorded until units are brought in for repairs.

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