Excom sells radios, and each unit carries a two-year replacement warranty. The cost repair defects under the warranty is estimated at 5% of the sales price. During September, Excom sells 100 radios for $50 each. One radio is actually replaced during September. For what amount in September would Excom debit Product Warranty Expense? a. $50 b. $250
Excom sells radios, and each unit carries a two-year replacement warranty. The cost repair defects under the warranty is estimated at 5% of the sales price. During September, Excom sells 100 radios for $50 each. One radio is actually replaced during September. For what amount in September would Excom debit Product Warranty Expense? a. $50 b. $250
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Excom sells radios, and each unit carries a two-year replacement warranty. The cost repair defects under the warranty is estimated at 5% of the sales price. During September, Excom sells 100 radios for $50 each. One radio is actually replaced during September. For what amount in September would Excom debit Product Warranty Expense?
a. $50
b. $250
c. $30
d. $120
e. None of the above.
Expert Solution
Step 1
EXPLANATION
A replacement indicates that the originally sold radio was scrapped and completely replaced . therefore ,the cost of new radio should be debited to product warranty expense and not 5%of the sales price.
therefore, $250 would be debited to product warranty expense in september.
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