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Wheels Inc. manufactures kick scooters. The company offers a one- year warranty on all scooters. During 2019, the company recorded net sales of $2,800 million. Historically, about 3% of all sales are returned under warranty and the cost of repairing and or replacing goods under warranty is about 30% of retail value. Assume that at the start of the year Wheels’ balance sheet included an accrued warranty liability of $15.4 million and at the end of the year, the accrued warranty liability balance was $11.5 million.
a) How should Wheels recognize warranty claims (on the balance sheet and income statement)?
b) Calculate Wheels’ warranty expense for 2019.
c) How much did Wheels pay during the year to repair and or replace scooters under warranty?
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