EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During 2017, the company recorded net sales of $1,900 million. Historically, about 4% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 30% of retail value. Assume that at the start of the year EZ Wheels' balance sheet included an accrued warranty liability of $16.3 million and at the end of the year, the accrued warranty liability balance was $12.4 million.
How much did EZ Wheels pay during the year to repair and/or replace scooters under warranty?

Question

Quizplus · Accepted Answer

The estimated warranty expense for the year is 4% of $1,900 million, which is $76 million. The change in the warranty liability account is $16.3 million (beginning) - $12.4 million (end) = $3.9 million decrease. Therefore, the payments made during the year are $76 million (expense) - $3.9 million (decrease in liability) = $26.7 million.

EZ Wheels Corporation Manufactures Kick Scooters