Question

Me: Ryan needs help with Accounting as soon as possible. Ryan wrote:
I was wondering if you would be able to help me solve this, ive tried many ways but have not gottent the correct answer, Puzzles Company sells merchandise with a one-year warranty. In Year 1, sales consisted of 3,600 units. It is estimated that warranty repairs will average $15 per unit sold, and 40% of the repairs will be made in Year 1 and 60% in Year 2. In the income statement for Year 1, Puzzles Company should show warranty expense of?a. $54,000.
b. $0.
c. $21,600.
d. $32,400.

Answer 1

Answer:

The answer will be below;

Explanation:

a.$54,000

(3,600*15)

The warranty expense is estimated and it is probable that an outflow of $54,000 will be incurred. Therefore in first year, the whole warranty expense is recorded for both the years. As per definition of provision; it is present obligation as a result of past event, outflow is probable and amount of outflow can  also be easily estimated.

Answer 2

Answer:

$54000 ( A )

Explanation:

number of unit sales = 3600

estimated warranty repairs average = $15 per unit

note : 40 percent of repairs will be made in year 1

           60 percent repairs will be made in year 2

Total warranty expense = ( 3600 * $15 ) = $54000

In the income statement for year 1 the whole warranty expense is recorded

this is because the total warranty expense is needed to balance the accounts as accounts deductible instead of adding the remaining 60 % to accounts receivable,