Research Company sells merchandise with a one year warranty. In 2012, sales consisted of 2,500 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2012 and 70% in 2013. In the 2012 income statement, Research should show warranty expense of
A) $25,000
B) $7,500
C) $17,500
D) $0

Question

Quizplus · Accepted Answer

The warranty expense for 2012 should reflect the total estimated cost of repairs for all units sold in that year, regardless of when the repairs are actually made. Therefore, the expense is 2,500 units x $10 per unit = $25,000.

Research Company Sells Merchandise with a One Year Warranty