kohl co. provides warranties for many of its products. this January 1 2016, bala

Question

kohl co. provides warranties for many of its products. this January 1 2016, balance of the estimated warranty liability account was $35,200. based on analysis of warranty claims during the past several years, this year's warranty provision was established at 0.4% of sales. during 2016 the actual cost of servicing products under warranty was $15,600, and sales were $3,600,000.
a. what amount of warranty expense will appear on Kohl Co.'s income statement for the year ended December 31, 2016?
b. What amount will be reported in the estimated warranty liability account on the December 31, 2016, balance sheet?

Explanation / Answer

Answer a) Warranty Expense of $14400 (i.e. 3600000*0.4%) will appear on Companies income statement for the year ended December 31, 2016.

Answe b) calculation of Provision of Warranty on the deceember 31, 2016:

opening Provision $ 35200

Add Current Year provision $ 14400

less Current actual cost of Warranty $ 15600

= $34000

Amount of $ 34000 is reported in warranty liability account.

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