EZ Wheels Corporation Manufactures Kick Scooters

Short Answer

EZ Wheels Corporation manufactures kick scooters. The company offers a one-year warranty on all scooters. During 2017, 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 EZ 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 EZ Wheels account for warranty claims?
b. Calculate EZ Wheels' warranty expense for 2017.
c. How much did EZ Wheels pay during the year to repair and or replace scooters under warranty?