Exhibit 9-2
In 2015, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year assurance-type warranty at an average cost of $60. During 2015, Magtag had an actual outlay of
$62,000 for repairs under warranty. Magtag uses the GAAP approach of accruing warranty expense and the related liability) in the year of the sale.
-Refer to Exhibit 9-2. At what amount should the company record warranty expense for 2015?

Question

Quizplus · Accepted Answer

The warranty expense for 2015 is calculated as follows: 16,000 ovens * 14% expected to require repairs * $60 average cost per repair = $134,400. This is the amount that should be recorded as warranty expense for 2015 according to the GAAP approach of accruing warranty expense in the year of the sale.

Exhibit 9-2 In 2015, the Magtag Company Sold 16,000 Ovens. Magtag Estimated