Analyzing and Computing Accrued Warranty Liability and Expense
Waymire Company sells a motor that carries a 60-day unconditional warranty against product failure. From prior years' experience, Waymire estimates that 3% of units sold each period will require repair at an average cost of $100 per unit. During the current period, Waymire sold 64,000 units and repaired 1,000 units.
(a) How much warranty expense must Waymire report in its current period income statement?
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(b) What warranty liability related to current period sales will Waymire report on its current period-end balance sheet? (Hint: Remember that some units were repaired in the current period.)
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