Finance questions
February 27, 2021
Value of the Investment
February 27, 2021

Homework 7, Question #6

Alpha Company sells widgets for $20 each. The widget has a one year warranty. Alpha estimates that 6% of the widgets will require repair during the warranty period. The estimated average repair cost is $4.30 per widget. On July 31, the Estimated Warranty Liability account had a normal balance of $15,000. During August, sales were $70,000. During August, 550 widgets were repaired under the warranty agreement with an actual cost of $4.50 each. Use this information to determine:

1. The August 31 Estimated Warranty Liability ending balance

2. The August Warranty Expense

I feel like maybe I am overthinking this question, here is what I have so far:

550 widget x $4.50= $2,475 is the August warranty expense

$15,000 (Warranty Liability Account) – $2,475 (August Expense)= $12,525 August 31 Estimated Warranty Liability ending balance

Do I have my calculations correct, or am I missing something?

"Get 15% discount on your first 3 orders with us"
Use the following coupon

Order Now
Place Order

Hi there! Click one of our representatives below and we will get back to you as soon as possible.

Chat with us on WhatsApp