Bike World offers warranties on all their bikes. They estimate warranty expense at 3.5% of sales. At the beginning of 2013, the Estimated Warranty Payable account had a credit balance of $1,200. During the year, Bike World had $295,000 of sales, and had to pay out $5,300 in warranty payments. At the end of the year, what is the closing balance in the Estimated Warranty Payable accounts?

Question

Quizplus · Accepted Answer

The estimated warranty expense for the year is 3.5% of $295,000, which equals $10,325. Adding this to the beginning balance of $1,200 gives $11,525. Subtracting the $5,300 paid out in warranty payments results in a closing balance of $6,225.

Bike World Offers Warranties on All Their Bikes