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.

What was EZ Wheels Corporation’s warranty expense for 2017?

Explanation / Answer

Warranty expense for the year 2017 = 1900 million * 4% * 30% = $ 22.80 million.

The accrued warranaty liability balance is after reducing warraty claims settled during the year.

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