Exhibit 9-2 In 2013, the Magtag Company sold 16,000 ovens. Magtag estimated that 14% of the machines would require repairs under the two-year warranty at an average cost of $60. During 2013, Magtag had an actual outlay of $62,000 for repairs under warranty. Magtag uses the expense warranty accrual method.

-Refer to Exhibit 9-2. At what amount should the company record warranty expense for 2013?

Question

-Refer to Exhibit 9-2. At what amount should the company record warranty expense for 2013?

Quizplus · Accepted Answer

The amount of warranty expense that should be recorded for 2013 is calculated as follows: 
16,000 ovens x 14% = 2,240 ovens that will require repairs under warranty
2,240 ovens x $60 per repair = $134,400 total estimated warranty cost
Since actual outlay for repairs was $62,000, the remaining amount of warranty expense to be recognized is $134,400 - $62,000 = $72,400.
Therefore, the company should record $72,400 in warranty expense for 2013, bringing the total to $134,400. Hence, the correct answer is C.

Exhibit 9-2 in 2013, the Magtag Company Sold 16,000 Ovens