Wright Company sells merchandise with a one-year warranty. In the current year, sales consisted of 2,000 units. It is estimated that warranty repairs will average $15 per unit sold and 30% of the repairs will be made in the current year and 70% in the next year. In the current year's income statement, Wright should show warranty expense of
A) $9,000
B) $21,000
C) $30,000
D) $0

Question

Quizplus · Accepted Answer

The warranty expense for the current year should be based on the total estimated cost of repairs for all units sold, which is 2,000 units x $15 per unit = $30,000. This entire amount is recognized as an expense in the current year, regardless of when the repairs are actually made.

Wright Company Sells Merchandise with a One-Year Warranty