Use the following information for questions below
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
$$\begin{array} { l c c }
& \text { Sales } & \text { Actual Warranty Costs Incurred During Year } \
2020 & \$ 3,500,000 & \$ 110,000 \
2021 & \$ 3,900,000 & \$ 195,000
\end{array}$$
-The warranty expense for 2021 was
A)$157,500.
B)$175,500.
C)$195,000.
D)$305,000.

Question

Use the following information for questions below
Radio Hut Inc.offers a two-year assurance warranty against failure of its products.The estimated liability is 1.5% in the year of sale and 3% in the second year.Sales and actual warranty expense for 2020 and 2021 were:
$$\begin{array} { l c c } 
& \text { Sales } & \text { Actual Warranty Costs Incurred During Year } \
2020 & \$ 3,500,000 & \$ 110,000 \
2021 & \$ 3,900,000 & \$ 195,000
\end{array}$$
-The warranty expense for 2021 was
A)$157,500.
B)$175,500.
C)$195,000.
D)$305,000.

Quizplus · Accepted Answer

To calculate the warranty expense for 2021, we need to use the estimated liability rates provided. The liability rate for the second year is 3%, so we can multiply the sales for 2020 (which represent the products that are still under warranty in 2021) by 3% to get the expected warranty expense for 2021.

$5,250,000 x 3% = $157,500

Therefore, the correct choice is B) $175,500, which is the closest answer to the calculated warranty expense.

Use the Following Information for Questions Below Radio Hut Inc

Use the Following Information for Questions Below
Radio Hut Inc