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How do you estimate Warranty Expense and how often do you do the estimates?
Wiki User
∙ 14y ago
7. The Pink Cadillac car dealership provides warranty work on all vehicles sold. The entityʼs past
experience has indicated the following:
-60% of cars sold in a year have zero defects
-25% of cars sold in a year have normal defects
-15% of cars sold in a year have significant defects.
It is estimated that a vehicle with normal defects will incur $3,000 in costs and a vehicle with
significant defects will incur $12,000 in costs.
During the current year, PC sold 80 vehicles and incurred $70,000 in actual costs. With an
opening balance of $40,000 in the warranty provision account, what would be the balance at
the end of the current year and how much warranty expense would be recognized during the
current year?
a) $174,000 and $204,000
b) $174,000 and $70,000
c) $204,000 and $204,000
d) $174,000 and $174,000
Wiki User
∙ 14y ago
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