Exhibit 13-2 In 2010, the Markel Company sold 14, 000 washing machines.Markel estimated that 12% of the machines would require repairs under the two-year warranty at an average cost of $50.During 2010, Markel had an actual outlay of $48, 000 for repairs under warranty.Markel uses the expense warranty accrual method.
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Refer to Exhibit 13-2.At what amount should the company record warranty expense for 2010?

Question

Quizplus · Accepted Answer

To record warranty expense, Markel should use the estimated percentage of machines that will require repairs under warranty (12%) and the average cost of repairs ($50). Therefore, the amount of warranty expense that Markel should record is calculated as follows: 
14,000 machines x 12% x $50 = $84,000. 
Since the actual outlay for repairs under warranty was only $48,000, Markel would record a credit to its Warranty Liability account for this amount, resulting in a net Warranty Expense for the year of $36,000 (i.e., $84,000 - $48,000). Therefore, the best choice is C, $84,000.

Exhibit 13-2 in 2010, the Markel Company Sold 14, 000