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Landfall Navigation began operations in 2017 and provides a one year warrenty on

ID: 2531428 • Letter: L

Question

Landfall Navigation began operations in 2017 and provides a one year warrenty on the products it sells. They estimate that 20,000 of the 400,000 units sold in 2017 will be returned for repairs and that these repairs will cost $8 per unit. The cost of repairing 16,000 units presented for service in 2017 was $128,000. Landfall should report Warranty expense of $32,000 for 2017 Warranty expense of $160,000 for 2017. Warranty liability of $160,000 on Dec 31, 2017 No warranty obligation on Dec 31, 2017, since this is only a contingent liability.

Explanation / Answer

Option B is correct i.e Warranty expense of $160,000 for 2017.

Warranty liability is ( 160000 - 128000 ) $ 32000 as on Dec 31, 2017 .

Warranty expense ( 20000 * 8 ) 160000 Warranty liability 160000 Warranty liability 128000 Cash 128000

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