Felicity Company sells computers with a 6-month warranty. It is estimated that 2% of all units sold will need repairs under warranty at an estimated cost of $200 per unit. During January, the company sold 100,000 computers at $1,750 each, and 1,500 computers were turned in for repairs during that same month. The total actual repairs costs amounted to $185,000 from the computer parts inventory. The balance in the Estimated Warranty Liability Account on January 1 was $15,000.
What is the balance in the Estimated Warranty Liability Account at the end of January?
A) $230,000
B) $415,000
C) $215,000
D) $600,000

Question

Quizplus · Accepted Answer

The balance in the Estimated Warranty Liability Account at the end of January is $230,000. This is calculated as follows:Beginning balance: $15,000Add: Estimated warranty liability for January: $215,000Less: Actual warranty repairs: $185,000Ending balance: $230,000The estimated warranty liability for January is calculated as follows:Number of units sold: 100,000Estimated percentage of units needing repairs: 2%Number of units estimated to need repairs: 2,000Estimated cost per unit: $200Estimated warranty liability: $400,000

Felicity Company Sells Computers with a 6-Month Warranty