Walter Corp.introduced a new machine on January 1, 2010.The machine carried a two-year warranty against defects.The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale.Additional information follows: $\begin{array}{lrr}
&&\text { Actual Waranty }\
\text { Year } & \text { Sales } & \text { Expenditures }\
2010 & \$ 40,000 & \$ 600 \
2011 & 60.000 & 2,200
\end{array}$
If the expense warranty accrual method is used, what amount relating to warranty expense should be reflected on the December 31, 2011 income statement?
A)$2, 200
B)$4, 800
C)$5, 200
D)$7, 400

Question

Walter Corp.introduced a new machine on January 1, 2010.The machine carried a two-year warranty against defects.The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale.Additional information follows: $\begin{array}{lrr}
&&\text { Actual Waranty }\
\text { Year } & \text { Sales } & \text { Expenditures }\ 
2010 & \$ 40,000 & \$ 600 \
2011 & 60.000 & 2,200
\end{array}$
 If the expense warranty accrual method is used, what amount relating to warranty expense should be reflected on the December 31, 2011 income statement?
A)$2, 200
B)$4, 800
C)$5, 200
D)$7, 400

Quizplus · Accepted Answer

The expense warranty accrual method requires that warranty expense be recognized in the period of sale. The amount of expense recognized is based on the estimated warranty costs related to dollar sales. In this case, the estimated warranty costs are 3% in the year of sale and 5% in the year after sale.For 2010, the warranty expense is $40,000 x 3% = $1,200. For 2011, the warranty expense is $60,000 x 5% = $3,000. The total warranty expense that should be reflected on the December 31, 2011 income statement is $1,200 + $3,000 = $4,800.

Walter Corp If the Expense Warranty Accrual Method Is Used, What Amount