Scott Company sells merchandise with a one-year warranty. Sales consisted of 2,500 units in Year 1 and 2,000 units in Year 2. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2 for the Year 1 sales. Similarly, 30% of repairs will be made in Year 2 and 70% in Year 3 for the Year 2 sales. In the Year 3 income statement, how much of the warranty expense shown will be due to Year 1 sales?
A) $6,000
B) $14,000
C) $20,000
D) $0

Question

Quizplus · Accepted Answer

In Year 3, the warranty expense shown will only be related to Year 2 sales since the warranty repairs for Year 1 sales would have been completed by the end of Year 2.

Scott Company Sells Merchandise with a One-Year Warranty