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A company sells big-screen televisions for $3,000 each. Each television has a two-year warranty that covers the replacement of defective parts. It is estimated that 1% of all televisions sold will be returned under warranty at an average cost of $250 each. During July, the company sold 10,000 big-screen televisions, and 80 were serviced under the warranty during July at a cost of $18,000. The credit balance in the Estimated Warranty Liability account at July 1 was $26,000. What is the company's warranty expense for the month of July

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Answer:

$25,000

Explanation:

1% of TVs will be defective and the company will spend $250 to repair them.

Total warranty expense during July = 10,000 TVs sold x 1% x $250 = $25,000

July 31, warranty expense:

Dr Warranty expense 25,000

    Cr Warranty liability 25,000

The balance of the warranty liability account at the end of July will be $26,000 - $18,000 + $25,000 = $33,000

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