Garrett Company sells merchandise with a one year warranty. In 2012, sales consisted of 3,500 units. It is estimated that warranty repairs will average $15 per unit sold, and 30% of the repairs will be made in 2012 and 70% in 2013. In the 2012 income statement, Garrett should show warranty expense of
A) $36,750
B) $15,750
C) $52,500
D) $0

Question

Quizplus · Accepted Answer

The warranty expense for 2012 should be based on the total estimated cost of repairs for all units sold, which is 3,500 units x $15 per unit = $52,500. This entire amount is recognized as an expense in 2012, regardless of when the repairs are actually made.

Garrett Company Sells Merchandise with a One Year Warranty