Cycle​ Sales, Inc. offers warranties on all their bikes. They estimate warranty expense at 3.5​% of sales. At the beginning of​ 2025, the Estimated Warranty Payable account had a credit balance of $ 1800. During the​ year, Cycle Sales had $ 309000 in sales and had to pay out $ 6000 in warranty payments. How much Warranty Expense will be reported on the 2025 income​ statement?

Answer 1

To calculate the Warranty Expense for Cycle Sales, Inc. to be reported on the 2025 income statement, we start by determining the estimated warranty expense based on sales.

1. Calculate the estimated warranty expense:

   \[ \text{Estimated Warranty Expense} = \text{Sales} \times \text{Warranty Rate} \]

   Given:

• Sales = $309,000

• Warranty Rate = 3.5% (or 0.035)

  \[ \text{Estimated Warranty Expense} = 309,000 \times 0.035 = 10,815 \]

2. Report the Warranty Expense:

The Warranty Expense of $10,815 will be reported on the 2025 income statement.

To summarize:

• The Warranty Expense reported on the 2025 income statement is $10,815.