Question
Osuoyidlot Inc, estimates its warranty expense for its products as 5% of its dollar sales. The company also has a policy to maintain a minimum
Osuoyidlot Inc, estimates its warranty expense for its products as 5% of its dollar sales.
The company also has a policy to maintain a minimum balance of $12,000 in its Estimated Warranty Liability account.
The company uses the calendar year as its fiscal year, and as of January 1, 2016, Estimated Warranty Liability account had a $16,500 normal balance.
During years 2016 to 2018, the company reported the following activity.
| Year | Total Sales | Warranty % | Actual Warranty Replacements |
| 2016 | $1,000,000 | 5.00% | $78,000.00 |
| 2017 | 1,400,000 | 5.00% | 64,000.00 |
| 2018 | 1,600,000 | 5.00% | 89,000.00 |
How much warranty expense must the company recognize for year 2016? Show Calculations.
A. $73,500
B. $78,000
C. $50,000
D. $11,500
E. $70,000
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Intermediate Accounting Volume 2
Authors: Thomas Beechy, Joan Conrod, Elizabeth Farrell, Ingrid McLeod-Dick
7th Edition
1259108023, 9781259108020
