Fast Bikes, Inc. offers warranties on all their bikes. They estimate warranty expense at 3.5% of sales. At the beginning of 2018, the Estimated Warranty Payable account had a credit balance of $1900. During the year, Fast Bikes had $296,000 in sales and had to pay out $5900 in warranty payments. At the end of the year, what is the ending balance in the Estimated Warranty Payable accounts?

Question

Quizplus · Accepted Answer

The correct answer is A.The beginning balance in the Estimated Warranty Payable account is $1900. During the year, Fast Bikes had $296,000 in sales and had to pay out $5900 in warranty payments. The warranty expense is estimated at 3.5% of sales, so the estimated warranty expense for the year is $296,000 * 3.5% = $10,360. The ending balance in the Estimated Warranty Payable account is the beginning balance plus the estimated warranty expense for the year minus the warranty payments made during the year, so the ending balance is $1900 + $10,360 - $5900 = $6360.