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 73,000 units and repaired 1,000 units.

(a) How much warranty expense must Waymire report in its current period income statement? (b) What warranty liability related to current period sales will Waymire report on its current period-end balance sheet?

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Business

Gina Mcdaniel

10 June, 13:25

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 73,000 units and repaired 1,000 units.

(a) How much warranty expense must Waymire report in its current period income statement? (b) What warranty liability related to current period sales will Waymire report on its current period-end balance sheet?

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Bernard · Answer 1

Answer: Income statement $100,000

Balance sheet warranty liability $Nill

Explanation:

Since we are at the end of the period and all activities has been concluded with no expectation of claim of repairs. The firm will only record the cost incurred for current period on repairs which is $100,00 ($100*1000). The liability will be zero since the company has taken care of all repairs for the period.