K2 Inc. manufactures equipment for individual and team sports including skiing,

Question

K2 Inc. manufactures equipment for individual and team sports including skiing, snowboarding, and in-line skating. The company offers a one-year warranty on all products. During 2014, the company recorded net sales of $1,934.7 million. Historically, about 2% of all sales are returned under warranty and the cost of repairing and/or replacing goods under warranty is about 50% of the retail value. Assume that at the start of the year K2’s balance sheet included an accrued warranty liability of $8.43 million and at the end of the year the accrued warranty liability balance was $6.49 million.

1.      How much did K2 pay during the year to repair and/or replace goods under warranty?

a.       $10.92 million

b.      $17.41 million

c.       $19.35 million

d.      $21.29 million

None of the above

Explanation / Answer

Warranty expense accrued for 2014 = 1934.7 * .02 *.50 = 19.347 million

Warranty expense paid = Beginning +accrued during the year -end

                          = 8.43 + 19.347 - 6.49

                         = $ 21.287 million

Correct option is "D" - $ 21.29 million     (approx 21.287 rounded to 2 decimal place )

Related Questions

Navigate

• Browse (All)
• Browse K
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.