Homework 7, Question #6

Alpha Company sells widgets for $20 each. The widget has a one year warranty. Alpha estimates that 6% of the widgets will require repair during the warranty period. The estimated average repair cost is $4.30 per widget. On July 31, the Estimated Warranty Liability account had a normal balance of $15,000. During August, sales were $70,000. During August, 550 widgets were repaired under the warranty agreement with an actual cost of $4.50 each. Use this information to determine:

1. The August 31 Estimated Warranty Liability ending balance

2. The August Warranty Expense

I feel like maybe I am overthinking this question, here is what I have so far:

550 widget x $4.50= $2,475 is the August warranty expense

$15,000 (Warranty Liability Account) – $2,475 (August Expense)= $12,525 August 31 Estimated Warranty Liability ending balance

Do I have my calculations correct, or am I missing something?

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