On January 1, 2022, Hopewell Company began a warranty program to stimulate sales. It is estimated that

Question:

On January 1, 2022, Hopewell Company began a warranty program to stimulate sales. It is estimated that 5% of the units sold will be returned for repair at an estimated cost of $30 per unit. Sales and warranty figures for the three years ended December 31 are as follows: 

Instructions 

a. Calculate the warranty expense for each year and warranty liability at the end of each year. 

b. Record the warranty transactions for each year. Credit Repair Parts Inventory for the actual warranty costs. 

c. To date, what percentage of the units sold have been returned for repair under warranty? What has been the average actual warranty cost per unit for the three-year period?


Assume that at December 31, 2024, management reassesses its original estimates and decides that it is more likely that the company will have to service 7% of the units sold in 2024. Management also determines that the average actual cost per unit incurred to date (as calculated in part [c] above) is more reasonable than its original estimate. What should be the balance in the Warranty Liability account at December 31, 2024?  

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Related Book For  book-img-for-question

Accounting Principles Volume 2

ISBN: 9781119786634

9th Canadian Edition

Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel, Barbara Trenholm, Valerie Warren, Lori Novak

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