Flip Electric began operations in 2012 and provides a one year warranty on the p

Question

Flip Electric began operations in 2012 and provides a one year warranty on the products it sells. They estimate that 10,000 of the 200,000 units sold in 2012 will be returned for repairs and that these repairs will cost $8 per unit. The cost of repairing 8,000 units presented for service in 2012 was $64,000. Flip should report a. warranty expense of $16,000 for 2012. b. warranty expense of $80,000 for 2012. c. warranty liability of $80,000 on December 31, 2012. d. no warranty obligation on December 31, 2012, since this is only a contingent liability.

Explanation / Answer

d. no warranty obligation on December 31, 2012, since this is only a contingent liabilit

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