Understanding Estimated Warranty Expense and Liability

What is the estimated warranty expense for the current period?

The estimated warranty expense for the current period is $11,250, which is 5% of the company's sales of $225,000. To calculate the estimated warranty expense, we need to multiply the sales amount by the estimated warranty expense rate of 5%.

Calculation of Estimated Warranty Expense

Sales: $225,000

Warranty Expense Rate: 5% or 0.05

Estimated Warranty Expense: Sales * Warranty Expense Rate

Estimated Warranty Expense: $225,000 * 0.05 = $11,250

Therefore, the estimated warranty expense for the current period is $11,250.

Understanding Estimated Warranty Expense and Liability

The estimated warranty expense represents the expected cost that the company will incur to fulfill its warranty obligations based on the sales volume. It is a provision made by the company to account for the potential warranty claims from customers.

The estimated warranty liability is the amount that the company sets aside to cover the cost of honoring warranties. In this case, the estimated warranty liability would also be $11,250, assuming there are no changes in the warranty liability from previous periods.

The estimated warranty liability is classified as a current liability on the balance sheet and represents the company's obligation to provide warranty services or repairs to customers within a specified period. The estimated warranty liability expense is recognized in the income statement as an expense during the period to match with the revenue generated from the sales.