Hall Company sells merchandise with a one-year warranty. In the current year, sales consist of 4,500 units. It is estimated that warranty repairs will average $10 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, Hall should show warranty expense of

Question

Quizplus · Accepted Answer

The warranty expense for the current year is calculated as the total estimated warranty cost for all units sold, which is 4,500 units x $10 = $45,000. This entire amount is recognized as an expense in the current year, regardless of when the repairs are actually made.

Hall Company Sells Merchandise with a One-Year Warranty