In 2015, Morton Co.sold 150 hot air balloons at $4,000 each. The balloons carry a 5-year warranty for defects. Morton estimates that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $14,000. $20,000 in claims was actually incurred during the year to honor their warranty. What was the warranty expense for 2015?

Question

Quizplus · Accepted Answer

The warranty expense is calculated as 4% of the total selling price of the balloons. Total sales are 150 balloons x $4,000 = $600,000. Therefore, the warranty expense is 4% of $600,000, which equals $24,000.