Albert Corp. introduced a new machine on January 1, 2014. The machine carried a two-year warranty against defects. The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale. Additional information follows:

$\begin{array}{l}
\begin{array}{rrr}
\text { Actual Warranty }\
\underline{\text { Expenditures }}&\underline{\text { Sales}}&\underline{\text { Year}}\
\$ 600 & \$ 40,000 & 2014 \
2,200 & 60,000 &2015
\end{array}
\end{array}$

If the expense warranty accrual method is used, what amount relating to warranty expense should be reflected on the December 31, 2015 income statement?
A) $2,200
B) $4,800
C) $5,200
D) $7,400

Question

Albert Corp. introduced a new machine on January 1, 2014. The machine carried a two-year warranty against defects. The estimated warranty costs related to dollar sales were 3% in the year of sale and 5% in the year after sale. Additional information follows:

$\begin{array}{l}
\begin{array}{rrr}
\text { Actual Warranty }\
\underline{\text { Expenditures }}&\underline{\text { Sales}}&\underline{\text { Year}}\
\$ 600 & \$ 40,000 & 2014 \
2,200 & 60,000 &2015
\end{array}
\end{array}$
	 
 If the expense warranty accrual method is used, what amount relating to warranty expense should be reflected on the December 31, 2015 income statement?
A) $2,200
B) $4,800
C) $5,200
D) $7,400

Quizplus · Accepted Answer

The expense warranty accrual method requires that warranty expense be recognized in the period of sale. The amount of warranty expense is estimated based on the estimated warranty costs related to dollar sales. In this case, the estimated warranty costs are 3% in the year of sale and 5% in the year after sale.For 2014, the warranty expense is estimated to be $40,000 x 3% = $1,200. For 2015, the warranty expense is estimated to be $60,000 x 5% = $3,000. The total warranty expense that should be reflected on the December 31, 2015 income statement is $1,200 + $3,000 = $4,800.

Albert Corp If the Expense Warranty Accrual Method Is Used, What Amount