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Question
Scott Company sells merchandise with a one-year warranty. Sales consisted of 2,500 units in Year 1 and 2,000 units in Year 2. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in Year 1 and 70% in Year 2 for the Year 1 sales. Similarly, 30% of repairs will be made in Year 2 and 70% in Year 3 for the Year 2 sales. On the Year 3 income statement, how much of the warranty expense shown will be due to Year 1 sales?
a. $6,000
b. $14,000
c. $20,000
d. $0
Answer
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