Bike World Inc.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 is $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.