Waymire Company sells a motor that carries a 60-day unconditional warranty again

Question

Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure. Waymire estimates that between the sale and lapse of the product warranty, 2% of the 69,000 units sold this period will require repair at an average cost of $50 per unit. A warranty liability of $10,000 is currently on the balance sheet. How much warranty expense must Waymire report in its income statement and what amount of additional warranty liability must it report on its balance sheet for this year?

Total expected future warranty costs

Additional warranty cost liability required

Explanation / Answer

Warrany Cost= Unit sold * % subject to claim *anerage cost per claim

= 69000*.02*$50= $69000

Dr Cr

Warranty cost/expense $69000

Warranty Cost liabilty $69000

Ans 1 Future warranty cost is $69000

Ans 2: Additional warrany cost liability is $69000

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