You are a sales manager for a company that sells computers. You earn an annual bonus based on revenue from the number of computers sold each year less related warranty expenses. Actual warranty expenses have varied over the prior five years from a high of 8% of a computer's selling price to a low of 4%. In the past, you have estimated warranty expense on the high end to be conservative. Once a year, you are required to work with the company's accountant to determine the warranty expense accrual for computers sold for the year.

1. Does the warranty accrual decision make an ethical dilemma for you, the sales manager? Explain.
2. Because the warranty expenses vary, what percentage would you choose for the current year? Justify your position.
3. Present the journal entry the accountant would make to record the warranty accrual given your chosen percentage. Assume computer sales are $500,000 for the year.
4. Assume several computers have warranty-covered repairs for a total repair cost of $25,000. Present the journal entry the accountant would make to record these repairs. Additionally, analyze whether your estimated warranty accrual (amount that you determined in Question 2 above) was sufficient to cover the expenditures. If not, explain what you would do to better estimate warranties in the future.

Post

1. Based off the information provided in the question, I believe it is possible for the warranty decision to pose an ethical dilemma. The information states my salary would be "less related warranty expenses." It is unclear if that would be based off estimated or actual warranty expenses. If my salary is based off the estimated warranty expenses, I would have a conflict of interest because the percentage I chose to use would effect my potential income. If I chose a lower percentage, I could receive more income, but put my company in an unfavorable position by not allowing for enough funds to cover warranty needs in the future. If my salary is based off the actual warranty expenses, my decision would have little, if any, impact on my final salary. I would not know what the actual warranty expenses would end up as and would not have an influence on that amount. This would leave me free to make a decision based on the best interest of the company, with no personal factors taken into consideration.
2. I would choose to set the percentage at 7%. This is a value that accounts for the average of the highs and low, which would be 6%. This percentage decision also follows the previously-set trend to lean toward the higher, conservative end, without setting aside an unnecessarily high percentage.

Dec 31	Warranty Expense	35000
	Estimated Warranty Liability		35000

1. My decision to set the warranty percentage at 7% was sufficient to cover the actual cost incurred. I exceeded the costs by $10,000 or by 2%.

Unknown Date	Estimated Warranty Liability	25000
	Parts Inventory		25000

Wild, J. (2020).Fundamental Accounting Principles(25th Edition). McGraw-Hill Higher Education

DO NOT answer any of the 1-4 questions. Answer the following questions : Do you agree with the post response as far as whether an ethical dilemma exists in the scenario? What are your thoughts on your classmate's chosen percentage for warranty accruals? Do you agree or disagree with the presented journal entries to record the warranty accrual and to record the warranty-covered costs? Elaborate. Do you have suggestions for your classmates to better estimate warranties in the future? Explain. Support your responses to classmates with additional research and/or examples of your understanding of accounting for warranties. above this based off the post.