During July,Audio City sold 200 radios for $50 each.Each radio had cost Audio City $30 to purchase and carried a two-year warranty.If 5 percent typically need to be replaced over the warranty period and one actually is replaced during July,the entry to record the Product Warranty Expense is:

Question

Quizplus · Accepted Answer

The Product Warranty Expense is recorded when there is an expected expense related to warranty claims. In this case, the warranty expense is estimated based on the number of radios sold and the expected claims.

Based on the information provided, we know that:

- Audio City sold 200 radios for $50 each, making the total revenue $10,000
- Each radio had cost Audio City $30 to purchase, making the total cost $6,000 (200 radios x $30 each)
- Typically, 5% of radios need to be replaced over the warranty period, which would be 10 radios in this case (5% of 200)
- One radio was actually replaced during July, which means that 9 more are expected over the rest of the warranty period.

To calculate the estimated warranty liability, we need to multiply the expected number of claims (9) by the cost per radio ($30):

9 x $30 = $270

Therefore, the entry to record the Product Warranty Expense would be:

Product Warranty Expense $300
Estimated Product Warranty Liability $300

This entry recognizes the estimated cost of covering the warranty claims, based on the number of radios sold and the expected claims.

During July,Audio City Sold 200 Radios for $50 Each