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During 2009, Eversharp Co. introduced a high-quality exercise product that has a guaranteed replacement product warranty. The company expects that 2% of the products sold will need to be repaired or replaced at an average cost of $25 per unit. The company sold 300,000 units in 2010.
-Related to the sale of the products in 2010, Eversharp Co. would record
A) a debit to Warranty Expense of $6,000.
B) a credit to Warranty Liability of $6,000.
C) a debit to Warranty Expense of $150,000.
D) a credit to Warranty Liability of $300,000.
E) none of the above.

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Use the following information to answer questions 
During 2009, Eversharp Co. introduced a high-quality exercise product that has a guaranteed replacement product warranty. The company expects that 2% of the products sold will need to be repaired or replaced at an average cost of $25 per unit. The company sold 300,000 units in 2010.
-Related to the sale of the products in 2010, Eversharp Co. would record
A) a debit to Warranty Expense of $6,000.
B) a credit to Warranty Liability of $6,000.
C) a debit to Warranty Expense of $150,000.
D) a credit to Warranty Liability of $300,000.
E) none of the above.

Quizplus · Accepted Answer

The company expects 2% of 300,000 units to need repair or replacement, which is 6,000 units. At $25 per unit, the warranty expense is $150,000 (6,000 units x $25).

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