101. Landfall Navigation began operations in 2017 and provides a one year warran

Question

101. Landfall Navigation began operations in 2017 and provides a one year warranty 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 a. warranty expense of $32,000 for 2017. b. warranty expense of $160,000 for 2017. c. warranty liability of $160,000 on December 31, 2017 d. no warranty obligation on December 31, 2017, since this is only a contingent liability Ans: B, LO: 2, Bloom: C, Difficulty: Medium, Min: 3, AACSB: Analytic, AICPA BB: Legal/Regulatory Perspective, AICPA FN: Reporting, AICPA PC: Problem Solving, IMA: Reporting

Explanation / Answer

a) Warranty expenses of $32000 for 2017

I.e ($20,000 - $16,000) x $8

= $4000 x $8

= $32000

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