EZ Wheels Corporation manufactures kick scooters. The company offers a one-year

Question

EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During 2017, the company recorded net sales of $1,900 million. Historically, about 4% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 30% of retail value. Assume that at the start of the year EZ Wheels’ balance sheet included an accrued warranty liability of $16.3 million and at the end of the year, the accrued warranty liability balance was $12.4 million.

How much did EZ Wheels pay during the year to repair and or replace scooters under warranty?

Select one:

A. 12.4 million

B. 22.8 million

C. 76.0 million

D. 26.7 million

E. None of the above

Explanation / Answer

Warranty expense during the year=1900*4%*30%= $22.8 million Amount paid during the year to repair and or replace scooters under warranty = 22.8+16.3-12.4= $26.7 million Option D is correct

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