Merritt Equipment Company sells computers for $1,500 each and also gives each cu
ID: 2474968 • Letter: M
Question
Merritt Equipment Company sells computers for $1,500 each and also gives each customer a 2-year warranty that requires the company to perform periodic services and to replace defective parts. During 2015, the company sold 9,000 computers. Based on past experience, the company has estimated the total 2-year warranty costs as $40 for parts and $60 for labor. What should Merritt show as total revenues on its income statement in 2015? What should Merrit show as warranty expense on its 2015 income statement? Based solely upon these transactions, what should the warranty liability be at 12/31/15?Explanation / Answer
(a) Total Revenue = 1500computers * 9000 each = $ 13500000
(b) Warranty expenses = (60 labor + 40 parts ) * 9000computers = $ 9,00,000