Question

Smith Electic ​(SE​) owed Estimated Warranty Payable of $ 1,500 at the end of 2017. During 2018​, SE made sales of $ 110,000 and expects product warranties to cost the company 2​% of the sales. During 2018​, SE paid $ 2,300 for warranties. What is SE​'s Estimated Warranty Payable at the end of 2018​? A. $ 2,300 B. $ 2,200 C. $ 1,400 D. $3,700?

Answer 1

Estimated Warranty Payable at the end of 2017 = $1,500

Sales during 2018 = $110,000

Warranty expense percentage = 2%

Estimated warranty expense for 2018 = Sales during 2018 x Warranty expense percentage

= 110,000 x 2%

= $2,200

Warranty expense paid during 2018 = $2,300

Estimated Warranty Payable at the end of 2018 =  Estimated Warranty Payable at the end of 2017 + Estimated warranty expense for 2018 - Warranty expense paid during 2018

= 1,500 + 2,200 - 2,300

= $1,400

Correct option is (C)

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