Question

Parker Company’s balance reflected Estimated Warranty Payable of $2,000 credit at the end of 2018, the current year. During 2019, the following year, Parker had sales of $200,000 and expects product warranties to cost the company 10% of sales. During 2019, Parker paid $17,000 for warranties. What is Parkers Estimated Warranty Payable balance at the end of 2019?

Answer 1

$5,000

Step-by-step explanation:

The computation of the estimated warranty payable is shown below:

= Credit balance + expected warranty based on sales - warranties paid

= $2,000 + $20,000 - $17,000

= $22,000 - $17,000

= $5,000

The expected warranty based on sales would be

= sales × estimated percentage

= $200,000 × 10%

= $20,000

Simply we added the credit balance and expected warranty and deduct the paid warranties so that the actual amount can come