In 2020, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 5% of sales revenue. First-year sales of the heaters were $300,000. An evaluation of the company’s claims experience in late 2021 indicated that actual claims were less than expected—4% of sales rather than 5%. Assuming sales of the heaters in 2021 were $350,000 and warranty expenditures in 2021 totaled $12,000, what is the 2021 warranty expense?
In 2020, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 5% of sales revenue. First-year sales of the heaters were $300,000. An evaluation of the company’s claims experience in late 2021 indicated that actual claims were less than expected—4% of sales rather than 5%. Assuming sales of the heaters in 2021 were $350,000 and warranty expenditures in 2021 totaled $12,000, what is the 2021 warranty expense?
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter22: Accounting For Changes And Errors.
Section: Chapter Questions
Problem 10E
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In 2020, Quapau Products introduced a new line of hot water heaters that carry a one-year warranty against manufacturer’s defects. Based on industry experience, warranty costs were expected to approximate 5% of sales revenue. First-year sales of the heaters were $300,000. An evaluation of the company’s claims experience in late 2021 indicated that actual claims were less than expected—4% of sales rather than 5%. Assuming sales of the heaters in 2021 were $350,000 and warranty expenditures in 2021 totaled $12,000, what is the 2021 warranty expense?
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