Analyzing and Computing Accrued Warranty Liability and Expense Waymire Company s
ID: 2711569 • Letter: A
Question
Analyzing and Computing Accrued Warranty Liability and Expense
Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure. From prior years' experience, Waymire estimates that 3% of units sold each period will require repair at an average cost of $100 per unit. During the current period, Waymire sold 64,000 units and repaired 1,000 units.
(a) How much warranty expense must Waymire report in its current period income statement?
$Answer
(b) What warranty liability related to current period sales will Waymire report on its current period-end balance sheet? (Hint: Remember that some units were repaired in the current period.)
$Answer
Explanation / Answer
Warranty Expense = (64,000 * .03) *100
= 1920 *100
= $ 192,000
Warranty Liability = 192,000 -(1000 * 100)
= 192,000 - 100,000
= $ 92,000