Blankenship Company estimated that its warranty expense would be $4,250 for the current year. During the year Blankenship paid $920 to repair merchandise that was returned by customers.
a) What is the amount of warranty expense for the current year?
b) If this is the first year of operations, what is the amount of warranty liability that will be shown on the balance sheet at the end of the year?
a) The amount of warranty expense for the current year can be calculated by subtracting the amount paid to repair merchandise from the estimated warranty expense.
Warranty Expense = Estimated Warranty Expense - Amount Paid to Repair Merchandise
= $4,250 - $920
= $3,330
Therefore, the amount of warranty expense for the current year is $3,330.
b) If this is the first year of operations, the warranty liability that will be shown on the balance sheet at the end of the year will be the same as the estimated warranty expense.
Warranty Liability = Estimated Warranty Expense
= $4,250
Therefore, the amount of warranty liability that will be shown on the balance sheet at the end of the year is $4,250.
To determine the answers to the questions, we need to understand the concept of warranty expense and warranty liability.
a) The amount of warranty expense for the current year can be calculated by subtracting the amount paid to repair merchandise from the estimated warranty expense.
Warranty Expense = Estimated Warranty Expense - Amount Paid to Repair Merchandise
Warranty Expense = $4,250 - $920
Warranty Expense = $3,330
Therefore, the amount of warranty expense for the current year is $3,330.
b) Warranty liability refers to the estimated cost of fulfilling warranties on products sold by a company. If this is the first year of operations for Blankenship Company, the warranty liability on the balance sheet will be the same as the warranty expense.
Warranty Liability = Warranty Expense
Warranty Liability = $3,330
Therefore, the amount of warranty liability that will be shown on the balance sheet at the end of the year is $3,330.